The internal management rule (Turquand's Rule) allows third parties to rely on the ostensible authority of company directors, making transactions valid despite internal irregularities, if executed in good faith.

[20] The meaning of a derivative action was succinctly explained by Gopal Sri Ram JCA (as he then was) when delivering the judgment of the Court of Appeal in Abdul Rahim Aki v. Krubong Industrial Park (Melaka) Sdn Bhd & Ors, [1995] 3 MLJ 417. This is what His Lordship said:

A derivative action is based upon the premise that the company which has been wronged, is unable to sue because the wrongdoers are themselves, in control of its decision-making organs, and will not, for that reason permit an action to be brought in its name. In this circumstances, a minority shareholder may bring an action on behalf of himself and all the other shareholders of the company, other than the defendants. But in so doing, he must cite the company and the wrongdoers as defendants and the title to the action must reflect that the suit is being brought in a representative capacity. The statement of claim or other pleading filed in support of the originating process must disclose that it is a derivative action and recite the facts that make it so, and further, there must be an express statement in the pleading that the action is being brought for the benefit of the company. A plaintiff in a derivative action cannot thus sue in his own name, without indicating that he is bringing the action in a representative capacity and for the benefit of the company.

[21] Further, Loh Siew Cheang, in his book, Corporate Powers Accountability, 2nd Edn, at p 1146, opined that if the action is to recover the loss suffered by the company on a completed ultra vires transaction, then a derivative action must be brought as the injured party is the company itself.

[22] There was nothing pleaded in the respondents' amended statement of claim to even suggest that the claim was a derivative action brought for the benefit of the 4th defendant. (See Kelapa Sawit (Teluk Anson) Sendirian Berhad v. Dr Yeoh Kim Leng & 4 Ors, [1991] 1 MLJ 301.

[23] It is trite law that a company is a separate legal entity from its shareholders and Directors. (See People's Insurance Co (M) Sdn Bhd v. People's Insurance Co Ltd & Ors, [1986] 1 MLJ 68. Accordingly, the respondents' suit founded on fraud and forgery should have been brought by the 4th defendant, the company itself being the registered owner of the property, against the 1st and 2nd defendants and Malaysian Aerosols, and not by themselves.

[24] Although the issue of locus standi was not an issue included in the issues to be tried before the learned trial Judge, it was nonetheless pleaded by the appellant in para 8.12 of its amended defence and leave to appeal on this ground was granted by the Court of Appeal on 4 January 2013. This Court was keen to hear arguments by Counsel for the appellant and the respondents on this fundamental issue of locus, which went to the jurisdiction of the trial Court and to the heart of the matter. The Court cannot agree with counsel for the respondents that, just because the issue of locus was not included as an issue to be tried, it necessarily meant that it was implied that the respondents did have the locus.

[25] Where a party does not have the locus standi to bring an action, the Court will not have the jurisdiction to determine the issue. In the case of Luggage Distributors (M) Sdn Bhd v. Tan Hor Teng @ Tan Tien Chi & Anor, [1995] 1 MLJ 719, the Court of Appeal held as follows:

Viewed from this standpoint, the justice of a case will ordinarily lie in favour o