MAGISSON L v IMMOBILIER CONSEIL MARKETING LTEE

2014 SCJ 267

SCR Co 550(m)/11

IN THE SUPREME COURT OF MAURITIUS

(COMMERCIAL DIVISION)

In the matter of:-

Lionel Magisson APPLICANT

Immobilier Conseil Marketing Ltée RESPONDENT

JUDGMENT

This is an application for leave to authorise the applicant to enter a derivative action
in the name of the respondent under section 170 of the Companies Act in order (i) to quash
the self-interested acts and doings of the three directors which constitute an abuse of their
rights as directors and which are in breach of the law; and (ii) to claim from the three
directors, IC Services and/or IC (a) all the secret profits made by them in respect of the
services provided by the company IC Marketing; and (b) all commissions not paid by them to
IC Marketing.

The applicant was the Managing Director and holding 25% of the shares in the
respondent, IC Marketing (ICM), since the 1st March 2007 and his employment with ICM
was terminated around the 8th October 2010.

Messrs Georges Talebotier, Kian Jhuboo and Alexandre Tsang Mang Kin (the three
directors) are the directors and sole shareholders of Immobilier et Conseil Ltée. (IC), a
private company incorporated on the 20th August 2003. IC is the sole shareholder of
Immobilier Conseil Services Ltée. (IC Services), a private company incorporated on the 12th
February 2007 of which the three directors are the sole directors. ICM is another private
company incorporated on the 23rd February 2007 whose directors are the three directors and
the applicant and it is a subsidiary of IC Services. The three directors hold 75% of the shares
in ICM through IC Services and IC.
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The applicant avers that in or about 1996, he met Mr George Talebotier in

Madagascar through a charitable organisation and they became friends. They met again in
2004. The applicant was working in a company and Mr Talebotier, after settling in Mauritius,
joined IC. In 2006, Mr Talebotier proposed the applicant to join the IC Group to market the
residential development, the ‘Domaine du Levant’ and the commercial centre, the ‘Phoenix
Les Halles’, on the terms that the three directors, through IC Services, would hold 75% of the
shares of ICM to be incorporated and the applicant to be the Managing Director and holding
the remaining 25% shareholdings.

By letter dated the 21st December 2006, the applicant was offered the post of
Managing Director of ICM (Annex A) and a contract of employment was signed on the 31st
January 2007 (Annex B).

The applicant has averred the reasons for the creation of the various companies of
IC Group. At the Board meeting of ICM held on the 7th August 2008 (Annex D), an
agreement was reached between IC/IC Services and ICM whereby IC/IC Services would be
paid a percentage of the commission received by ICM from its clients for administrative tasks
undertaken by IC/IC Services. The terms were as follows:

(i) For every project initiated/introduced by IC/IC Services, the clients would pay a
commission due to ICM to IC Services, which would retain 20% of the
commission and remit the remaining 80% to ICM;

(ii) For every project initiated/introduced by ICM, IC Services would be paid 10% of the
commission paid to ICM.

The applicant avers that following the incorporation of ICM in 2007, the followings were
the projects undertaken:-

(i) Phoenix Les Halles (PLH), a commercial centre of 30,000 sq.m., out of which 6000
sq.m. had been sold and the remainder rented out. ICM obtained at least Rs5m
in terms of commission;
(ii) Domaine Du Levant (DDL), a joint enterprise between IC Group and Groupe Mon
Loisir, involving 57 lots generating Rs300m. As at June 2009, 30 lots were sold
and 6 were reserved. Although the contract was with IC Services, it was ICM
which did the whole marketing and promotion;
(iii) The Riverside Shopping Centre (RSC), a mixed complex of some 5500 sq.m.
comprising of retail outlets and offices where following a contract for services
dated the 8th June 2009,between IC Services and the Groupe Mon Loisir/Actis, IC
 3

Services would be paid 15% commission on the execution of the lease

agreement and 85% on the opening of each shop/commercial space. ICM did all
the marketing, sales and promotion for which it would be paid 80% of the
commission earned by IC Services. Over 86% of the commercial space had been
rented out by ICM for which it would have earned Rs4m. The centre opened on
the 26th October 2010. IC Services was paid Rs2,638,577.77 of commission
exclusive of VAT leaving a balance of some Rs1.5m. ICM was entitled to 80% of
the commission i.e Rs2,110,864.21 but ICM was paid only Rs192,000, leaving a
balance of Rs1,918,846.21.

It has been averred that although other projects in the pipeline did not materialise, the
extension of the Tamarin Commercial Centre and Soleil Ocean projects went ahead but the
three directors did not allow ICM to sell and market those projects.

The applicant avers that ICM made a loss of Rs576,913 for the financial period February
2007 to June 2008and through his effort, ICM made a net profit of Rs54,937 during the next
financial period. ICM depended on monies advanced by IC Services for its operation.
According to the figures advanced by the three directors, the veracity of which had not been
checked, ICM owed over Rs2.1m to IC Services representing the amount due as
shareholder’s loans from IC Services. The applicant claims that as at date, IC Services owed
Rs1.9m to ICM on the RSC project and after set off of the shareholder’s loan, the debt would
be Rs0.2m. However, IC Services owed further amount (Rs1.5m on the RSC project) which
when taken into consideration, IC Services would owe Rs1.3m.

From the account dated the 31st December 2010 communicated by the three directors to
the applicant, IC Services owed Rs583,206.34 to ICM which amount had not been verified.

The applicant alleges that problems started around 2009 when Mr Talebotier’s
employment with the Groupe Mon Loisir was terminated and the Groupe Mon Loisir
disinvested in the services of IC Services. Thereafter, Mr Talebotier put pressure on the
applicant in his capacity as Managing Director to find projects for ICM so that the latter did
not depend on IC Services. Applicant avers that it was also the stand of Mr Jhuboo and he
noticed the growing hostility of the three directors towards him.

Applicant avers that the three directors who were also directors and shareholders of IC
and IC Services had all throughout acting in the interest of those two companies.
Furthermore, following a series of disagreement on projects which failed or which did not
proceed according to plans, this relationship with the three directors deteriorated.
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It has been averred by the applicant that in October/November 2009, the three directors
acting as shareholders of IC Services decided to sell the totality of the shares of IC Services
in ICM to him. Negotiations were interrupted in April 2010 because of disagreements.

It has been alleged that on the 26th March 2010, the company secretary, an employee of
IC Services, sent him an email which was copied to Mr Talebotier containing proposed
documentation for the sale of the shares to be signed on the 30th March 2010 (Annex E)
which was never discussed with him. Amongst the documentation were the written
resolutions passed in lieu of a special meeting of shareholders to the effect that after taking
into account the net amount owed at 30th June 2009 by ICM to IC and IC Services, IC
Services would transfer the 1875 ordinary shares held by it to the applicant for Rs1.037,817
which consideration would be paid by ICM on his behalf. The three directors and the
company secretary would resign as from the 31st March 2010. Moreover, the name of ICM
would be changed to Immodir Marketing and Investment Ltd. and the three directors would
not act as signatories for the account of ICM. The price of the shares was based allegedly on
the report of an accounting firm which was sent to him consisting of three pages.

On the 29th March 2010, the applicant emailed Mr Talebotier which was copied to the
other two directors stating that the valuation of ICM did not represent the amount due to the
shareholders given that a major part of the value was in the human capital i.e. particularly his
as the Managing Director. Mention was also made to the future system of the functioning of
ICM; the amount due by IC/IC Services to ICM which had not been settled, the request of
details of the commission to be paid to ICM for the following projects: PLH, RSC; Domaine
de Saint Louis; DDL and Meltem. He proposed to repay the debt of IC Services by retaining
half of the commission due to ICM on each project developed by IC Services sold by ICM;
the 20% payable to IC Services in respect of commission received by ICM on projects
brought by IC Services would not apply to new projects after the sale of the shares of IC
Services to him and ICM would have the exclusivity of marketing the project developed by IC
Services.

The applicant avers that on the 31st March 2010, during a meeting at IC Services, Mr
Talebotier stated that the applicant had damaged their relationship and he threatened to
close down ICM if it could not pay its debt. He claims that he did not receive any reply to his
proposals but on the 13th April 2010, he received a proposal whereby the price of the shares
had been reduced (Annex G).

He avers that the three directors put into effect the threat and as from April 2010, IC
Services stopped advancing money to ICM. In January 2010, a payment of Rs240,000
excluding VAT was paid to IC Services for the RSC project who, after retaining 20%, paid
 5

Rs192,000 to ICM. As the latter had no liquidity, the applicant sought and obtained an
advanced payment of Rs500,000 inclusive of VAT from the promoter of RSC project but the
three directors of IC Services, through bad faith, refused to remit Rs400,000 to ICM which
was needed to pay the rent and staff. The applicant prepared a cash flow for presentation at
a meeting on the 19th May 2010 and objected to the course of action taken by the three
directors and requested the payment of Rs400,000 which was refused on the ground that
the money would be used to repay the shareholder’sloan of IC Services. Disagreement
arose when IC Services refused to pay the commission due to ICM.

The applicant avers that the unpaid commission due to ICM are as follows:-

(1) In respect of La Cage Rodriguaise.

Mr Tsang Mang Kin requested ICM to find tenants for his project La Cage
Rodriguaise (LCR). Two tenants were found. On the 6thAugust 2010, an invoice
claiming Rs166,869.60 was sent by ICM to LCR in respect of the company ESKAEM.
However, Mr Tsang Mang Kin considered that although the services had been
performed, there was problem with the tenant who was an irregular payer and as he
was retaining the services of a lawyer, the amount claimed could not be paid.

(2) In respect of PLH.

ICM was requested to perform all the marketing and promotion of PLH in
consideration of a payment of 80% of the commission earned on all letters of intent
signed. Applicant claims that there had been no proper accounts struck between ICM
and IC Services. Although payments totalling Rs2m were effected by IC Services to
ICM a balance remained outstanding and all requests for information from IC
Services remained unanswered. Having regard to the monthly revenue of Rs417,172
budgeted for PLH, the commissions of ICM would amount to at least Rs5m in terms
of commission and consequently Rs3m was still due to ICM.

At a Board meeting held on the 19th March 2009, the applicant noted that the monthly
fees in respect of PLH project in previous budgethad not been paid to the
company.When comparing the budgeted revenue up to February 2009 which was
estimated at Rs6.4m and he noted that the actual revenue was Rs2.1m. The
budgeted expenses were Rs4.9m compared to the actual expenses of Rs3.3m. The
explanation given by the directors was that such fees should not be paid for
operational expenses of the company and should be paid when the company would
be in a position to pay out dividends to the shareholders.
 6

Reference was made to the email sent by the company secretary dated the 13th April
2010 from which the applicant drew attention to the 25% dividend in respect of PLH
amounting to Rs602,500. From this, he contended that the unpaid commission due to
ICM was Rs2,410,000 (4 x 602,500). He avers that the three directors had defrauded
ICM in the sum of Rs2,410,000 in order to make a secret profit for themselves.
Furthermore, they had abused of their majority position and failed to disclose to ICM
the amount of commission due on the PLH project. On the 25th June 2010, the
applicant issued a proforma invoice to IC Services in the sum of Rs2,410,000 which
has remained unpaid.

(3) In respect toDDL

The applicant avers that Rs654,042.95 commission was unpaid for the DDL project.
He avers that IC owns 60% of the shares of DDL Promotion Ltée, the promoter of DDL
project.He avers that ICM had received commission on the sales of the houses and plots
of lands it sold. Thereafter ICM sold options to the purchasers. At a meeting of the 19th
May 2010, the applicant explained that ICM had not been paid commission of Rs570,000
for sales amounting to Rs14.2m. However dispute arose as to whether ICM was entitled
to 4% commission plus VAT on those options. The applicant avers that Mr Talebotier
was acting in the interest of DDL Promotion Ltd rather than that of ICM. The three
directors did not support any application for a bridging loan for ICM despite its financial
difficulty and instead a solvency report was sought which confirmed that ICM did not
satisfy the solvency test. A Board meeting was scheduledfor the 2nd June 2010 in order
to consider the solvency report and to decide on the appointment of a liquidator or
administrator to carry on with the business of ICM. A dispute arose between the
applicant and the three directors. The applicant claims that he had been able to get
enough funds from new clients to meet the payment for end of May 2010. On the 3st
August 2010, after obtaining a full breakdown of the options sold by ICM, he sent an
invoice to DDL in the sum of Rs654,042.95 being 4% commission plus VAT.

The applicant avers that on the 7th September 2010, he received a notice to attend a
meeting on the 8th September 2010 to show cause why disciplinary action should not be
taken against him for having acted contrary to the decision of the Board of ICM regarding
the option commission in respect of DDL. He gave a long explanation but the decision
was taken to hold a disciplinary committee. He claims that the resolution was illegal,
unwarranted and bad in law. He received a letter on the 8th September 2010 to attend a
disciplinary committee on the 20th September 2010 which was heard on the 1st October
2010 and he later received a letter from ICM informing him of his dismissal.
 7

He avers that at a Board meeting held on the 26th November 2010, the issue of work
done by ICM in respect of the options concerning DDL was looked into again. Mr Jhuboo,
representing ICM, at a Board meeting of the 8th September 2010 and Mr Talebotier in two
emails mentioned that no commission was to be paid for the options sales. However, at the
Board meeting of the 26th November 2010, Mr Jhuboo proposed the figure of Rs16.3m
exclusive of VAT to be used to calculate the options at 3.22% instead of 4% while the
applicant’sfigure which was billed was Rs14.2m. The amount to be paid to ICM on those
options was Rs262,945. The applicant states that he agreed to the reduced % but not to the
payment of 50% but the finally Mr Jhuboo and Mr Talebotier increased it to 70%. He avers
that all these were done in breach of fairness and transparency and in clear conflict of
interest.

The applicant avers that both Mr Jhuboo and Mr Talebotier had mishandled the affairs of
ICM. He alleges that they had failed to recover the following amounts due to ICM:

(i) Rs52,000 and Rs166,870 exclusive of VAT from ESKAEM;

(ii) Rs1.5m excluding VAT due by IC Services for the RSC project;
(iii) Rs2,410,000 excluding VAT due by IC Services for unpaid commissions for
the PLH project; and
(iv) Rs200,640 excluding VAT due by IC Services for unpaid commission for the
DDL project.

He avers that in the solvency report there was no mention of those sums save for the
RSC project where it was stated that ‘no inflows is expected yet from the client in view of
disagreement with the related company’.He alleges giving examples that the three directors
were not working in the interest of ICM and they were not seeking new projects. Resources
of ICM were used to sell and market Soleil Ocean project which ICM was prohibited to sell
and a commission of 1% would be paid to ICM to pay the two employees of ICM. At the
Board meeting of 4th March 2011, the applicant’s proposal before going for liquidation to
appoint the Official Receiver as administrator was turned down and it was decided that a
meeting of shareholders be called to decide whether the company should be made dormant
or not. At the shareholders’ meeting held on the 25th March 2011, discussions took place
regarding the solvency report, the various unpaid commissions and as the majority were
inclined in favour of making the company dormant, the applicant also voted to make the
company dormant. The employees were to be dismissed and given employment in IC or
Trimetys Ltd., a subsidiary of IC. Finally it has been averred that the three directors acted in
their own selfish interest and as they controlled ICM, they are unwilling to take action against
IC Services and/or IC where they were also directors.
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In the light of all those averments, the applicant prays for leave under section 170 of
the Companies Act to initiate proceedings in the name and on behalf of ICM against the
three directors, IC and/or IC Services to quash the decisions of the three directors as being
an abuse of their rights as directors and which are in breach of the law and to claim the all
unpaid commissions. There is also a prayer to authorise the applicant to control the conduct
of the proceedings and costs to be shouldered by ICM.

Mr Jhuboo, the director of ICM, who has been authorised to affirm an affidavit on
behalf of the ICM firstly explains the working of Immobilier et Conseil Ltée and its
subsidiaries including ICM. There is no dispute regarding the employment of the applicant as
Managing Director of ICM and his shareholding in respondent as well as the commission
payable to ICM for projects brought in by ICM and the other subsidiaries. The projects
referred to ICM and the proceeds generated had been listed namely DDL for Rs9,775,924
plus VAT; PLH for Rs2m plus VAT; RSC for Rs3,031,921 plus VAT, Société Malherbes,
Roches Noires for Rs588,661 plus VAT and Barachois Commercial Centre, Tamarin for
Rs244,603 plus VAT. As ICM did not obtain any achievable and realistic project under the
applicant’s management, the three directors discussed about the future of ICM and the
cessation of business. It has also been averred that the applicant committed acts of
misconduct in the discharge of his duties and disciplinary action taken resulting in his
dismissal. Furthermore, it alleges that the applicant had been setting up his own company in
the same line of business of ICM using funds, facilities and logistics of ICM and as at April
2011, the applicant is a director and shareholder of a company dealing along the same line
of business as ICM. It has been averred that the three directors did not receive any
remuneration, there was no dividends issued to shareholders while the applicant received
salary and bonus amounting to Rs5,005,457. Reference had been made as to the reasons
which pushed the applicant to join ICM.

Regarding the PLH project, it avers that the project was already in place when ICM
was set up and that the whole of the big premises had been marketed by IC. For the DDL
project, ICM effected the marketing partly and for the RSC project secured by IC Services, it
was subcontracted to ICM on terms and that all monies due under that project had been paid
to ICM. It denies that there was an agreement regarding the Tamarin Shopping Centre and
Soleil Ocean projects. It admits that there was a loss in the beginning and it also avers that
ICM was expected to depend on its own projects after IC had assisted it at the start. It claims
that all monies advanced by IC to ICM had been reimbursed. The Rs2.1m owed byICM to IC
Services had been reimbursed and it was found in the ICM’s audited account. It denies that
IC Services owed money to ICM.
 9

Many of the allegations had been denied by ICM. In respect of the claim for LCR, it
avers that ICM received Rs100,017 from LCR for Mr Lagrue and that as ESKAEM did not
pay, that debt was written off as a commercial gesture. As regards the other projects, it
reiterates the amount received as mentioned earlier and avers that there was no amount
due. It avers that the applicant agreed to the statement that for DDL project all amount due
had been received. ICM denies that the majority shareholders acted abusively and illegally.
It avers that there is no justification warranting the granting of applicant’s prayer.

In an affidavit dated the 26th September 2012, the applicant replied to the various
contention of ICM as have been alleged by Mr Jhuboo in the affidavit of the 1st September
2012. Many of the matters averred had already been stated in the applicant’s first affidavit
save for the figures advanced by ICM. He again claims that commissions had not been paid
by IC Services to ICM. He does not deny having incorporated a company whose business
was the same as that of ICM and he adds that it was only some 6 months after his dismissal
that the company was set up.

I need not go into the working arrangements ICM had with IC Services and the
decision to make the company dormant as those matters had already been averred earlier.
Similarly, nothing new had been averred in the affidavit of the 24th October 2012.

ICM, through Mr Jhuboo, affirmed another affidavit dated the 31st October 2012
rebutting the applicant’s affidavit of the 24th October 2012, denying and maintaining what
was stated earlier and making allusion to the various payments made to the applicant in
terms of salary and other advantages granted to him.

Learned counsel for the applicant submits that this is an application for leave to allow
a minority shareholder to enter an action in the name of the company (ICM) as those
controlling the said company, namely Mr Talbotier, Mr Jhuboo and Mr Tsang Mang Kin were
unwilling to take action against companies controlled by them. Relationship between the
shareholders deteriorated and the services of the applicant were terminated. There was
even an offer made to the applicant to purchase the majority shareholders. He refers to
Annex D, a document prepared by the majority shareholders when the offer to sell was
made, where the applicant avers that it was the first time that he heard of a commission of
Rs1m to be paid. The offer was turned down because the applicant did not have the means.
He says that the applicant drew their attention that commissions had not been paid.
Reference was made to an alleged debt of Rs602,000 to the applicant which he says was in
fact for ICM and not for him personally. He argues that from the exchange of letters, the
majority shareholders and directors had kept Rs2.4m which was not accounted for in the
company’s account. He says that the applicant does not have access to the account of the
 10

company and payment of commission to the ICM was made at the pleasure of the majority
shareholders of ICS and IC. He submits that when the applicant questioned the non-
payment of commission regarding the DDL transactions, the majority shareholders and
directors called for a Board meeting to consider whether disciplinary action should not be
taken against the applicant and indeed the applicant was dismissed for gross misconduct.
He points out that the majority shareholders also held shares in DDL and were not keen to
pay the commission to ICM. It was only when there was the court case that payment was
effected as there were documents in support of the claim. Regarding PLH, the amount was
disputed as there were no documents. Attention was drawn to Annex O, an email sent by Mr
Talbotier to the applicant not to proceed with any claim. Despite that, the applicant sent an
invoice to DDL for commission due amounting to Rs654,042.95. After the applicant was
dismissed from his employment, Mr Jhuboo on the 26th November 2010 admitted that 70%
of the commission would be paid to ICM and the applicant is questioning the remaining 30%.
Learned counsel pointed out that commissions were due regarding the Riverside Shopping
Centre Project and for La Case Rodriguaise, there is the admission of Mr Tsang Mang Kin
that commission was due but was written off. He also goes into the fate of ICM which
became dormant and the employees transferred to ICS. He refers to Annex R and the use of
the phone number and database of ICM.

Regarding the legal issue, learned counsel for the applicant submits that section
170(3) of the Companies Act makes it clear that leave would be given when it is clear that
the company does not intend to bring, defend or continue proceedings,. He argues that there
is ample evidence that the majority shareholders have made it clear that they would not have
ICM suing for the commissions in respect of PLH, DDL or for La Case Rodriguaise. They
dismissed the applicant when the latter raised invoices to claim for the commissions due to
ICM. He argues that the claim is justified and the costs minimal. He refers to EgonMauss v
Borneo Investment Group Inc. [2012 SCJ 448] and the authorities quoted therein. He
argues that the majority shareholders and directors of ICM have acted in violation of the
duties they owed to ICM. They ought to act in good faith and care in the exercise of their
powers which they have failed to do so. Instead, they abused their powers in depriving ICM
of income. Through their acts, ICM became dormant and they acted in connivance to get rid
of the applicant.

Learned counsel for the respondent submits that under section 170(6) of the
Companies Act, a shareholder or director of a company is not entitled to bring or intervene in
any proceedings in the name of the company. However, there is an exception namely the
applicant must satisfy the court firstly, that it is in the interest of the company that
proceedings must commence and secondly, that the conduct of the proceedings should not
 11

be left to the directors or to the determination of the shareholders as a whole. He argues that
the ground invoked by the applicant in the present application for leave is to quash the self-
interested acts and doings of the three directors of ICM which constitute an abuse of their
rights as directors and which are in breach of the law. Furthermore, there is an averment that
ICM has a claim to secret profits made by the three directors and of unpaid commission.
According to the applicant, IC Services which is a wholly owned company of IC, owned by
the three directors, owes money to ICM which the three directors were not minded to recover
and this to the prejudice of ICM. There was mere allegation not supported by document that
Rs1,916,864.47 is owed to ICM by ICServices. He concedes that it is not the duty of the
court at this stage to embark into a mini trial of the merits of the claim. However, he argues
that there must be some seriousness regarding the claim. He says that there was only a
narration of the various claims whereas ICM had given an explanation in its last affidavit. He
argues that a lot has been said by the applicant regarding the exchange of correspondences
and more especially regarding the amount of Rs2.4m. He submits that he cannot follow the
argument how the applicant could say that Rs602,000 was 25% of the shareholding and
therefore for 100%, the amount is multiplied by 4.

When his attention was drawn to the alleged unpaid commissions under paragraph
48(1), 48(iii) and 48(iv) of applicant’s affidavit, he says that regarding 48(iv), ICM agrees that
an amount of Rs294,498.40 plus VAT was due and it was settled on the 13th December
2010, according to the minutes of proceedings (Annex N) when the payable percentage was
voted by the Board and to paragraph 31 of the ICM’s affidavit. Regarding the SKM claim, he
says that Rs166,870 was due from La Case Rodriguaise and not SKM, out of which
Rs100,000 was paid by Mr Lagrue and in fact only Rs66,870 was written off. He conceded
that an amount of Rs52,000 was owed to ICM and the Board resolved not to claim the
amount as it was not economical.As to the alleged commissions regarding PLH, he argues
that the handling of the project was not done by ICS. However, he concedes that Rs2m
commission plus VAT had been received by instalments. He adds that at Annex H1, H2 and
H3, there are invoices for Rs1,725,000; Rs575,000 and Rs2,771,500 respectively. He says
that there is a dispute regarding a claim of Rs2.4m which ICM stated was not due.

At my request, learned counsel were given time to come up with a summary of all the
amount due and payments effected as mentioned in the various affidavits in chronological
order to enable easy analysis of whether any amount is disputed or not.

When the case was called for the continuation of the submission, learned counsel for
the respondent wanted to file an affidavit and objection was rightly taken as the case has
been closed.
 12

Learned counsel for the respondent in his submission rehashes what had been
submitted earlier and I had to stop him. In the absence of the table as requested by me, he
has nothing else to add.

Learned counsel for the applicant replies that there is evidence that a certain amount
was due to ICM which was never claimed by ICM because of the stand of the majority
shareholders who are also the shareholders of those companies which owed money to ICM.
Reference was made to the debts of SKM, La Case Rodriguaise, PLH. He submits that it is
not the role of the court to see if the amounts claimed are due or not but simply to have an
overall review of the possibility of the claim being successful.

I have scrutinized the bulky affidavits in the light of submissions of both learned
counsel in order to consider whether the applicant have raised sufficient facts to entitle him
to bring an action in the name of ICM in accordance to the terms of section 170 of the
Companies Act..

It is therefore convenient to set out the relevant part of section 170 of the Companies
Act (the Act) which reads as follows:

“(1) Subject to subsection (3), the Court, may, on an application of a shareholder

or director of a company, grant leave to that shareholder or director to-

(a) Bring proceedings in the name and on behalf of the company or its
subsidiary; or
(b) …………

(2) Without prejudice to subsection (1), in determining whether to grant leave

under that subsection, the Court shall have regard to-

(a) the likelihood of the proceedings that may follow;

(b) the costs of the proceedings in relation to the relief likely to be

obtained;

(c) any action already taken by the company or its subsidiary to obtain
relief;

(d) the interests of the company or its subsidiary in the proceedings being
commenced, continued, defended, or discontinued, as the case may
be.
 13

(3) Leave to bring proceedings or intervene in proceedings may be granted under

subsection (1), only where the court is satisfied that either-

(a) the company or related company does not intend to bring, diligently to
continue or defends, or discontinue, the proceedings, as the case may
be; or

(b) it is in the interests of the company or its subsidiary that the conduct of
the proceedings should not be left to the directors or to the
determination of the shareholders as a whole.

(4) Notice of the application shall be served on the company or its subsidiary.

(5) The company or related company-

(a) may appear and be heard; and

(b) shall inform the Court, whether or not it intends to bring, continue,
defend, or discontinue the proceedings, as the case may be.

(6) Except as provided for in the section, a shareholder or director of a company

is not entitled to bring or intervene in any proceedings in the name of, or on
behalf of, a company or its subsidiary.”

Under the common law, a minority shareholder has no locus standi to enforce
obligations owed to the company or wrong allegedly done to the company. The proper
plaintiff is the company. However, a minority shareholder can do so under the exception to
the rule in Foss v Harbottle (1843) 67 ER 189 (Ch) on the ground of fraud on the minority.
The applicant has the burden to establish that the wrongful act was of a fraudulent nature
and committed by those who control the company (vide Prudential Assurance v Newman
Industries (No. 2) ([1982) Ch 204 (CA)]. However in Barrett v Duckett [(1995) 1 BCLC
243 (CA)], the Court will grant leave to a shareholder to bring a derivative action on behalf of
the company where the action is brought bona fide and in the best interest and for the
benefit of the company and for wrongs to the company for which no other remedy is
available. Consequently, if the action is brought for an ulterior motive or where there are
alternative remedies, leave would not be granted. Vide also Waddington Ltd. v Chan Chun
Hoo Thomas and Ors, [FACV No. 15 of 2007], a decision of the Court of Final Appeal of
the Hong Kong Special Administrative Region.
 14

By section 170 of the Act, which has done away with the common law remedy, a
shareholder or director is authorised, under certain conditions, to enforce the rights and
remedies available to the company. Leave must be sought first and under section 170(2) of
the Act, when granting leave, the Court shall have regard to:- (a) the likelihood of the
proceedings that may follow;(b) the costs of the proceedings in relation to the relief likely to
be obtained;(c) any action already taken by the company or its subsidiary to obtain relief;and
(d) the interests of the company or its subsidiary in the proceedings being commenced,
continued, defended, or discontinued, as the case may be.

The Court also considers the stand of the company as provided for under section
170(3) of the Act namely:- whether (a) the company or related company does not intend to
bring, diligently to continue or defends, or discontinue, the proceedings, as the case may be;
or (b) it is in the interests of the company or its subsidiary that the conduct of the
proceedings should not be left to the directors or to the determination of the shareholders as
a whole.

I am of the view that ‘the likelihood of the proceedings that may follow’ can only mean
the ‘likelihood of the proceedings succeeding’, otherwise it makes no sense in granting leave
to enter a hopeless case. In considering whether there is a likelihood of the proceedings
succeeding, it is not my role to carry out a mini trial to consider the merits of the averments
advanced by the protagonists in their affidavits. The test which has been applied is that of a
prudent businessman in the conduct of his affairs which is whether he would consider
bringing a claim or not. He may decide that for example, for a debt of an insignificant
amount, it may not be worth pursing it as the costs would be exorbitant. Even if the claim is
likely to be successful, he may view that as the debtor is insolvent, the execution to recover
the judgment debt would be costly and therefore as a prudent businessman, he may
consider that it may not be in the best interest of the company to enter into litigation.

In respect of breach of fiduciary duties, a derivative action may be justified even

though there is only a suspicion that the director(s) has/have breached his/their statutory
duties. The test will not be that of a prudent businessman but rather that of a prudent trustee
in the management of funds under the trust.

In Ragless v IPA Holdings Pty Ltd [(2008) SASC 90], on the question of serious
issue to be tried, it was said that the ‘Court must determine whether the applicant has
demonstrated that there is a real question to be tried, that is to say, whether the applicant is
able to identify the legal and equitable rights to be determined at trial in respect of which the
final relief is sought:-Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd.
[(2001) HCA 63]’
 15

The onus is on an applicant to satisfy the Court that he is acting in good faith in
applying for leave to bring the proceedings. In Chahwan v Euphoric Pty Ltd. trading as
Clay and Michel [(2008) NSWCA 52], the Court of Appeal, when analysing the issue of
good faith, did not limit the test to the two factors identified in Swansson v Pratt [(2002)
NSWSC 583] namely, whether the applicant honestly believes that a good cause of action
exists and has a reasonable prospect of success; and whether the applicant is seeking to
bring the derivative suit for a collateral purpose in circumstances that would amount to an
abuse of process; but it considered “whether the applicant was in reality seeking to further
his or her own personal interests other than as a current or former shareholder of the
company, rather in the interests of the company as a whole.”

The Court will also consider the decision of the shareholders at the General Meeting
regarding the acts of the Board of Management and its decision regarding any of the
complaints made by a shareholder. If the majority shareholder also controls the Board of
Management, this does not mean that the Court will not allow a shareholder to bring a
derivative action having regard to the circumstances. As pointed out by Lord Denning in
Wallersteiner v Moir (No. 20 [(1975) 1 QB 373] :-

“But suppose (the company) is defrauded by insiders who control its affairs – by
directors who hold a majority of the shares – who then can sue for damages? Those
directors are themselves the wrongdoers. If a board meeting is held, they will not authorise
the proceedings to be taken by the company against themselves. If a general meeting is
called they will vote down any suggestion that the company should sue them themselves.
Yet the company is the one person who is damnified. It is the one person who should sue. In
one way or another some means must be found for the company to sue. Otherwise the law
would fail in its purpose. Injustice would be done without redress.”

Obviously if the harm is done to a shareholder, the latter cannot apply for leave for a
derivative action as he hasalternative remedy namely for remedy against oppression and for
unfair prejudice (section178 of the Act).

The applicant, being a shareholder and a director of ICM has the required locus
standi to enter the present application. It is common ground that ICM received commissions
from ICServices or IC on projects handled by ICM and the amount of commissions depend
on which company brought the work, whether it was ICM or the other two companies. It is
also undisputed that the three directors of ICM who are the majority shareholders also hold
the majority shares in IC Services and IC.
 16

From the exchange of the lengthy affidavits, it is clear that ICM has decided not to
take any action against ICServices and/or IC. The explanations given by the majority
shareholders are challenged by the minority shareholder. Now, although the applicant is not
on good terms with the other three directors who hold the rein of ICM, there is no allegation
that he had entered the application out of spite because he had been dismissed from his
employment as Managing Director of ICM.

The affidavits before me reveal that the three directors and majority shareholders
have acted apparently not in the interest of ICM which they were bound to do so as provided
for under section 143 of the Companies Act but they did so in the interest of the two other
companies where they also hold the majority shares. It has been admitted that commissions
due regarding La Case Rodriguaise and SKM had been written off, for the DDL project,
outstanding commission had not been paidand when the applicant raised invoices,
disciplinary action was taken against him which led to his dismissal, thus showing that the
majority shareholders and directors had no intention of claiming the dues of ICM thus
showing a disregard to their duties as directors of ICM albeit that much later payment was
allegedly made. [vide EgonMauss v Borneo Investment Group Inc. (supra)]. The
commission regarding PLH is still an issue and looking into the question of whether leave
should be granted or not, as pointed out earlier, it is not my duty to decide on disputed facts
but simply to ascertain that there is a prima facie arguable case with likelihood of the
proceeding succeeding.

The affidavits before me reveal that the applicant is not acting as an oppressed
minority shareholder but in the interest of ICM and asserious issues have been raised which
require to be probed into by the trial court and as ICM, the respondent, through its majority
directors and shareholders, have decided not to make any claims due from those companies
in which they hold the majority shares as well and as there are also allegation that the three
directors had allegedly pocketed secret profit to the prejudice of ICM, I find that the
applicant has satisfiedall the conditions laid down under section 170 of the Act for leave to
be granted. The cost to bring proceedings is not exorbitant compared to the alleged amount
owed to ICM.

In the light of the authorities referred to above and having regards to the affidavits
before me, the necessity to scrutinize the various accounts having regards to the minutes of
proceedings of the Board to finalise whether commissions had not been paid bearing in mind
that there is admission from the three directors that some amounts were still due and no
action taken for reason which should be best left to the trial court to see if they are justified
or not in the circumstances, I therefore grant the applicant leave to enter an action in the
 17

name of ICM to claim from the three directors, ICServices and/or IC all the alleged secret
profits made by them in respect of services provided by ICM and all commissions not paid to
ICM by companies controlled by the three directors. In view of the stand of the majority
shareholders, I authorise the applicant to control the conduct of the proceedings in the name
of ICM and the costs to be borne by ICM.

With costs against ICM.

P. LAM SHANG LEEN

JUDGE

22 JULY 2014

For Applicant : Mr T Koenig, SA –

Mr A Moollan, of Counsel together with
Mr J Wong Ten Yeung, of Counsel

For Respondent : Mr Attorney Preetam D Lallah –

Mr M Bocus, of Counsel