WETLAND STUDIOS SDN BHD v NORMAN BIN ABDUL HALIM

Case Significance

Illustrates how the statutory derivative-action requirements in sections 347 and 348 of the Companies Act 2016 govern proceedings brought in substance for a company's benefit, and the striking out of a suit filed without complying with those requirements as an abuse of process.

This High Court decision at Shah Alam, delivered by Hazizah binti Kassim JC, concerns a defendant's application to strike out a writ and statement of claim. The plaintiff, Wetland Studios Sdn Bhd, is a special-purpose vehicle established by two shareholders — Wegrow Edutainment (M) Sdn Bhd and KRU Studios Sdn Bhd — each holding 50% of its shares, and it operates at a park in Putrajaya. The plaintiff had commenced this action against the individual defendant. The defendant applied under Aturan 18 kaedah 19(1)(a), (b) dan/atau (d) Kaedah-Kaedah Mahkamah 2012 (Order 18 rule 19(1)(a), (b) and/or (d) of the Rules of Court 2012), together with sections 347, 349 and 350 of the Companies Act 2016, to strike out the writ.

The key question was whether the plaintiff company could bring the action as framed, or whether the substance of the claim required it first to comply with the statutory prerequisites for a derivative action. The Court construed the relevant provisions on their plain meaning, cautioning against inventing ambiguities or reading in words that are not there, and held that the plaintiff was bound to comply with the requirements of sections 347 and 348 of the Companies Act 2016 before it could file the suit against the defendant. The plaintiff's reliance on the doctrine of agency of necessity could not be sustained in preference to compliance with the shareholders' agreement and sections 347 and 348.

The Court concluded that filing the suit without following the statutory pathway prejudiced the defendant and amounted to an abuse of the process of the court. It allowed the defendant's application and struck out the writ and statement of claim, with costs subject to allocatur. The judgment is a useful illustration of how the statutory derivative-action requirements in sections 347 and 348 of the Companies Act 2016 govern proceedings brought in substance for a company's benefit, and of the striking out of a suit filed without complying with those requirements as an abuse of process.