The court ruled that minority shareholders must demonstrate good faith and genuine interest in corporate governance to commence a derivative action, which the applicants failed to do.

[Leave To Commence A Statutory Derivative Action]

Leong Wai Hong J:

Introduction

[1] This is an application via an Originating Summons dated 12 July 2023 in Enclosure 1 by three applicants to be granted leave to commence a derivative action against the 1st to 3rd respondents in the name of the 4th respondent ("Derivative Leave OS").

[2] The applicants assert "having an interest in corporate governance, the applicants decided to become the minority shareholder activists with the intention to act in the public shareholders' interest in questioning the independence of the 4th respondent's board of directors". [See applicants' written submissions encl 43 para 7]

[3] The Derivative Leave OS is filed pursuant to s 347 read with s 348 of the Companies Act 2016 Act 777 (" CA 2016").

[4] The Derivative Leave OS asked for the following orders:-

(a) That the applicants be granted leave to commence a derivative action in the name of the 4th respondent against the 1st to 3rd respondents;

(b) That the applicants as the minority shareholders of the 4th respondent be granted full control over the conduct and carriage of all aspects of the proceedings/action by the 4th respondent against the 1st to 3rd respondents;

(c) Such further and/or other relief deemed fit and appropriate by this Honourable Court ; and

(d) That costs of the applicants herein and/or costs of the 4th respondent are to be borne by the 1st to 3rd respondents.

On Correct Nomenclature

[5] The OS identifies the parties as applicants and respondents. The respondents identifies the parties as plaintiffs and defendants. The correct designations are plaintiffs and defendants as this is an OS. If it is an ex parte OS then the party filing it is described as the applicant. [See O 7 r 2 of the Rules of 2012]. For good order, I shall identify the parties as applicants and respondents since these are the designations used [wrongly] by the applicants.

Material Background Facts Of The Case

The Parties

[6] The 1st applicant is Irene Wong Sook Lin who acquired 26,000 unit of shares on 3 May 2023 in the 4th respondent. The 2nd applicant is Kwan Kum Loy who acquired 10,000 unit of shares on 2 May 2023 in the 4th respondent. The 3rd applicant is Lee Ceh Chan who acquired 10,000 unit of shares on 2 May 2023 in the 4th respondent.

[7] The 1st applicant Irene Wong Sook Lin was previously practising in the law firm of Messrs Gideon Tan Razali Zaini ["GTRZ"] who are the solicitors for South Malaysia Industries Berhad ["SMI"] which is the target company in a corporate fight between SMI and two subsidiaries of Prolexus Berhad the 4th respondent, now before the courts in three suits, the facts of which I will set out below. Mr Gideon Tan also appears as counsel for the applicants before me.

Note - Counsel for the applicants in the affidavits has defined South Malaysia Industries Berhad as SMIB but as SMI in his written submissions. For good order, I shall call this company SMI.

[8] The dates of acquisitions are material as they show the applicants acquired their shares after the alleged breach of directors' duties by the 1st to 3rd respondents. The involvement of the 1st applicant Irene Wong Sook Lin previously practising in the law firm of GTRZ and Mr Gideon Tan of GTRZ appearing as counsel for the applicants before me are also material. They all go to the twin issues of good faith and collateral purpose in s 348(4) CA 2016 which I shall address below.

[9] The 1st respondent is Datuk Au Yee Boon. The 2nd respondent is Tan Eik Huang. The 3rd respondent is Au Yee Soon. At all material times, the 1st to 3rd respondents are the executive and/or non-independent directors of the 4th respondent. The 4th respondent is Prolexus Berhad, a public listed company incorporated in Malaysia.

Good Practice

[10] The material background facts presented by counsel, while useful, are slanted to support their individual cases. [See encl 43 applicants' written submissions at paras 4 to 12 and encl 41 respondents' written submissi