Derivative actions can be validly initiated even when shareholder control is deadlocked, provided there is evidence of wrongdoer control.

[1] The present appeal concerns the preliminary issue raised by the appellant as to whether the suit before the High Court was a properly constituted derivative action.

[2] The 1st respondent commenced a derivative action for and on behalf of the 2nd respondent in the High Court. On 26 September 2013, the High Court allowed the claim.

[3] On 21 March 2016, the Court of Appeal dismissed the preliminary issue raised by the appellant and found that the suit filed by the 1st respondent in the High Court was a properly constituted derivative action.

[4] Leave to appeal was granted by this Court on 4 August 2016 for a single question of law which reads:

"Whether a derivative action may in law be brought for the benefit of a company, the management and control of which are deadlocked."

Material Facts

[5] At the High Court, the 1st respondent was the plaintiff, the 2nd respondent was the 1st defendant, and the appellant was the 2nd defendant. The 3rd defendant in the High Court, Dato' Seri Dr Abdullah Fadzil Che Wan, is not a party to this appeal. In this appeal, we will refer to the parties as they were referred to at the High Court.

[6] The 3rd defendant is a director of the 2nd defendant. The 3rd defendant is also a 90% shareholder of Perak Communication Technology Sdn Bhd, which in turn wholly owns the 2nd defendant.

[7] On or about 11 July 2005, the 2nd defendant was granted a licence by the Malaysian Communications and Multimedia Commission ("MCMC") to provide network facilities to telecommunication providers ("the Licence"). By a concession agreement dated 10 July 2007, the State of Perak appointed the 2nd defendant as the sole concessionaire to undertake construction works in the State of Perak under the Licence.

[8] Pursuant to the Licence, the 2nd defendant entered into a licence agreement with three telecommunication companies, Maxis, Digi, and Celcom ("Group A Operators"), whereby the 2nd defendant agreed to construct telecommunication towers at its own cost and rent them to the Group A Operators for a fixed period of time.

[9] By a Shareholders' Agreement dated 21 May 2007, the plaintiff and the 2nd defendant entered into an arrangement to create a separate entity, the 1st defendant. Significantly, the only two shareholders of the 1st defendant were the plaintiff and the 2nd defendant, each holding 50% of the shares.

[10] The Board of Directors of the 1st defendant consisted only of two directors, one each appointed by the plaintiff and the 2nd defendant respectively. The directors were the 3rd defendant, who was the 2nd defendant's nominee; and Haji Ahmad Kamal bin Zakaria (PW1), the plaintiff's nominee. The 3rd defendant was also the Chairman of the Board of Directors.

[11] The plaintiff, the 1st defendant, and 2nd defendant, and PINS Capital Sdn Bhd, a wholly owned subsidiary of the 2nd defendant, entered into a Management Agreement dated 21 May 2007. The 1st defendant undertook to perform the construction services, maintenance services and one-stop centre services defined therein. On 27 May 2007, the same four parties also entered into a First Supplemental Management Agreement, whereby it was agreed that the 1st defendant was to be paid a maintenance fee in accordance with the terms of the Management Agreement.

[12] Pursuant to the above agreements, the 1st defendant constructed and maintained 87 telecommunications towers.

[13] As events turned out, besides the Group A Operators, some other telecommunication providers ("Group B Operators") also entered into an agreement with the 2nd defendant. Relying on the Management Agreement, the plaintiff contended that the 2nd and 3rd defendants must account to the 1st defendant for the maintenance fee computed at 20% of the rental proceeds and other payments received from both the Group A and Group B Operators. However, the 2nd defendant's pos