The court affirmed that under the Companies Act 2016, derivative actions require a demonstration of good faith and that the action is in the best interest of the company, which the plaintiff failed to establish.

JUDGMENT

Harmindar Singh Dhaliwal FCJ:

Introduction

[1] There were two appeals before us, They revolve around issues pertaining to derivative actions brought under the Companies Act 2016 (" CA 2016"). These issues, as will become apparent later, are of great importance to directors and shareholders of companies. These issues arise where a wrong has been committed against the company. And sometimes when the wrongdoer is in control, no action can seemingly be taken to protect the interests of the company.

[2] The appeals were ordered to be heard together. They were appeals nos 02(f)- 31-04/2022(W) and 02(f)-32-04/2022(W). We will refer to them as Appeal 31 and Appeal 32 respectively in this judgment.

[3] The appeals arise out of the grant of leave by this Court on the following questions of law:

Appeal 31

Despite the abrogation by way of the Companies Act, 2016, s 347(3) of a complainant's right to bring a derivative action under common law, whether the principles under common law viz. the well entrenched exceptions to the rule in Foss v. Harbottle continue to apply for leave applications pursuant to s 348. ("Question 1")

Whether in determining an application for leave under s 348:

(i) The test to be applied by the Court is similar to the longestablished test to commence Judicial Review proceedings under Rules of , 2012, O 53, namely, that the application must not be frivolous; and

(ii) the jurisprudence developed in such proceedings apply. ("Question 2")

If the answers to Questions 1 and 2 are in the negative, what are the relevant principles to guide the High Court when determining an application for leave under s 348? ("Question 3")

In any event, what are the relevant principles guiding the High Court when determining "good faith" and "best interest of the company" within the meaning of s 348(4)? ("Question 4")

Appeal 32

Whether on a proper construction of s 348(4) of the Companies Act 2016 , the conjunctive elements of 'good faith' and 'best interest of the company' are to be objectively assessed on a collective basis before leave to commence a derivative action can be granted to a minority shareholder to sue the majority shareholder in the name of the company? (Question 1)

In the assessment of the principles set out in s 348(4) of the Companies Act 2016 for leave to be granted especially of the element of 'best interest of the company', whether the Court is obliged to consider the overarching factor of whether the proposed action would be counterproductive to the company's interest and whether it outweighs the complaint of the minority shareholder? (Question 2)

Whether the common law principles laid down in:

(a) the English Court of Appeal case of Nurcombe v. Nurcombe And Another [1985] 1 All ER 65 ;

(b) the English Court of Appeal case of Towers v. African Tug Company [1904] 1 Ch 558 ;

(c) the Supreme Court of New South Wales case in Swansson v. R A Pratt Properties Pty Ltd And Another [2002] 42 ACSR 313 ;

are applicable to preclude an applicant under ss 347 and 348 of the Companies Act 2016 from being the proper party to file and/or have control of the derivative action having been a direct and knowing participant of the alleged complaint or having received a benefit which he now complains? (Question 3)

In considering the element of 'good faith' under s 348(4) of the Companies Act 2016 , whether the Court is to judge the motive of the applicant solely by the purported objective that is sought to be achieved by the applicant instead of the hostilities and vendetta between the disputant parties? (Question 4)

To what extent does the Court consider the level of hostilities and vendetta between the parties to be sufficient to affect the applicant's good faith or raise a presumption of a collateral purpose?

(i) Does it require the defendant / respondent to demonstrate that the vendetta of the parties has led to vilification and a pursuit of personal gains?

(ii) Or is it sufficient to show that the applicant is motivated by vendetta,