LEE WAI PING v 1. ) MOHD TAUFIK BIN KAMIS 2. ) SERATA HIJAU SDN BHD

Case Significance

Illustrates the application of the statutory-derivative-action gateway under sections 347 and 348 of the Companies Act 2016 — notice, good faith and the company's best interests — where a director is alleged to have breached his fiduciary duties of loyalty and conflict-avoidance.

This High Court decision in the Commercial Division at Kuala Lumpur concerns an application for leave to bring a statutory derivative action. The plaintiff, a director and shareholder of the company, applied under sections 347 and 348(1) of the Companies Act 2016 for leave to commence and control proceedings in the name of and on behalf of the company against the first defendant, another director. Because the originating summons was not brought ex parte, the parties were described as plaintiff and defendants under Order 7 rule 2(2) of the Rules of Court 2012. The court had to work through the familiar gateway questions that govern statutory derivative actions: whether the application was barred by res judicata or amounted to a multiplicity of proceedings, whether the complainant had complied with the notice requirement in section 348(2), whether the complainant was acting in good faith, whether the proposed action was prima facie in the best interests of the company, and whether there had been undue delay in bringing the application. The underlying grievance was an alleged breach of a director's fiduciary duties of loyalty and avoidance of conflict, the complaint being that the first defendant had placed personal interests above his duties to the company. The court granted leave, permitting the plaintiff to commence derivative proceedings in the company's name against the first defendant and to control those proceedings fully and in all aspects as a director and shareholder, and ordered the first defendant to pay costs of RM10,000 subject to taxation. Delivered by Atan Mustaffa Yussof Ahmad J, the judgment is a useful illustration of how the statutory-derivative-action gateway under sections 347 and 348 is applied where a director is alleged to have breached his fiduciary duties. The decision also confirms that leave under section 348 is a screening exercise directed to whether the derivative claim should be allowed to proceed, and not a trial of the underlying allegations of breach, conflict and want of loyalty, which remain to be determined in the derivative action the court has now permitted to be brought.