BESTER MALAYSIA SDN BHD v 1. ) TAN TEE KUNG 2. ) LEAN KOCK KUANG 3. ) BUMI NADA SETIA HOLDINGS SDN BHD

Case Significance

Illustrates the limits of the business-judgment rule under sections 213 to 215 of the Companies Act 2016, holding that a director who acts without independent and informed judgment cannot invoke its protection and is liable for breach of fiduciary duty in respect of loss-making deals.

This High Court decision concerns a company's claim against its former sole director for breach of fiduciary duty and negligence in relation to two loss-making business deals, and the application of the business-judgment standard. The plaintiff, a Malaysian subsidiary of a foreign telecommunications group, sued its former sole director and chief executive, alleging breach of trust, breach of fiduciary duties and negligence in relation to two subcontracting deals in which it lost money, together with claims of conspiracy against him, another individual and a company, and a claim of insolvent trading. The company against which conspiracy was alleged did not enter an appearance and default judgment was entered against it, while the individual co-defendant was adjudged bankrupt and the claim against him was discontinued. On the fiduciary claim, the court examined the deals: acting as the company's sole signatory, the director had caused it to accept purchase orders as a subcontractor and then to issue its own purchase orders to a supplier company to procure materials and services, in circumstances the plaintiff said were tainted by misrepresentation. The court applied the test whether an honest and intelligent person in the director's position could reasonably have believed the deals were for the company's benefit, and considered the business-judgment rule and the duty of reasonable care, skill and diligence under sections 213, 214 and 215 of the Companies Act 2016. It found that the director had exercised no independent judgment and had not been informed about the subject matter of the business judgment to the extent a director would reasonably consider appropriate, so that he could not claim the protection of the business-judgment rule. Holding the fiduciary claim established, the court ordered him to pay damages assessed at RM2,822,504.40 with interest and costs, while finding that conspiracy was not made out. The judgment is a useful illustration of the limits of the business-judgment rule where a director acts without independent, informed judgment.