LEE YEE WUEN v.

LEE KAI WUEN & ORS

HIGH COURT MALAYA, JOHOR BAHRU
SEE MEE CHUN J
[SAMAN PEMULA NO: JA-24NCC-6-02/2019]
28 OCTOBER 2019

Case(s) referred to:

Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] 1 LNS 170; [1978] 2 MLJ 227

Chiew Sze Sun v. Cast Iron Products Sdn Bhd [1994] 1 CLJ 157

Dato' Oon Ah Baa @ Boon Pak Leong v. Eagle & Pagoda Brand Teck Aun Medical
Factory Sdn Bhd [2003] 1 LNS 537; [2004] 2 MLJ 340

Foss v. Harbottle [1843] 67 ER 189

Edwards v. Halliwell [1950] 2 All ER 1064

Prudential Assurance Co Ltd v. Newman Industries Ltd And Others (No. 2) [1982]

Johson v. Gore Wood & Co (a firm ) [2002] 2 AC 1

Rinota Construction Sdn Bhd v. Mascon Rinota Sdn Bhd & Ors [2018] 2 CLJ 129;
[2018] 1 MLJ 141

Ho Yee Kong v. Sakae Holdings Ltd and Other appeals and other matters [2018] 2
SLR 333

Abdul Rahim Aki v. Krubong Industrial Park (Melaka) Sdn Bhd [1995] 4 CLJ 551;
[1995] 3 MLJ 417

Ekuiti Setegap Sdn Bhd v. Plaza 393 Management Corp (established under The
Strata Titles Act 1985) [2019] 2 CLJ 592; [2018] 4 MLJ 284

Bandar Builder Sdn Bhd & Ors v. United Malayan Banking Corporation Bhd
[1993] 4 CLJ 7; [1993] 3 MLJ 36

Legislation referred to:

Companies Act 2016, ss. 346, 347(1), (2), 348, 350

Counsel:

For the plaintiff - Loh Siew Cheang, Foo Joon Liang, Lee Xin Div & Liew Tzen Jue;
M/s Gan Partnership

For the 1st defendant - Desmond J Louis,Johanan Puthucheary & Ms Vivian Kong;
M/s DJ Louis & Co

DALAM MAHKAMAH TINGGI MALAYA DI JOHOR BAHRU

DALAM NEGERI JOHOR DARUL TAKZIM
[SAMAN PEMULA NO: JA-24NCC-6-02/2019]
Dalam perkara Kien Yiap Trading
Sdn Bhd (No. Syarikat : 240078-A)

Dan

Dalam perkara Seksyen-seksyen

345, 346 dan 351 Akta Syarikat
2016

Dan

Dalam perkara Aturan 88 kaedah 2

 Kaedah-Kaedah Mahkamah 2012

ANTARA
LEE YEE WUEN ... PLAINTIF
(No. K/P : 750220-01-5367)
DAN
1. LEE KAI WUEN
(No. K/P : 811224-01-5367)
2. LOW NANG HIANG
(No. K/P Singapura : 480604-71-
5302)
3. KIEN YIAP TRADING SDN BHD ... DEFENDAN- DEFENDAN
(No. Syarikat : 240078-A)
ALASAN PENGHAKIMAN

Introduction

[1] The Plaintiff and the 1st Defendant are sister and brother. Upon the death of
their father, the Plaintiff became the majority shareholder in the 3 rd Defendant
company with 54.5% shares and the 1st Defendant 45.5%. The 2 nd Defendant is
the mother to the Plaintiff and the 1st Defendant.

[2] The Plaintiff had filed this Originating Summons (OS) in enclosure 1 to seek
the following prayers:

"A. The 1st and/or 2nd Defendants shall be jointly and severally liable to pay to the
3rd Defendant the total sum of RM3,412,829.41 wrongly paid to the 1 stand/or
2nd Defendants.

B. Apart from the sum stated in Prayer (A) above, the 1 st and/or 2nd Defendants
shall pay to the 3rd Defendant any other sums, which are rightly belonged to the
3rd Defendant but are wrongly paid and/or held by the 1st and/or
2nd Defendants.

C. Pursuant to Section 314 of the Companies Act 2016, an Extraordinary Genral

Meeting of the 3rd Defendant shall be held within 14 days of the Order, together
with directions, declarations and/or orders that:

...
...

E. Damages to be assessed and/or equitable compensation to be jointly and

severally paid by the 1st and 2nd Defendants to the Plaintiff.".

Enclosure 63

[3] By enclosure 63, the 1st Defendant has filed an application to strike out
prayers A and B of enclosure 1. Prayer D is an alternative to prayer C for the
removal of the 1st Defendant as director of the 3 rd Defendant company and the
appointment of the Plaintiff as director.

[4] The grounds as in enclosure 64 are that the relief sought is a derivative action
such that the Plaintiff is not entitled at law to file such an action. This is because
the reliefs are for and on behalf of the 3 rd Defendant company for which the
statutory requirements of section 347(1) and (2) of the Companies Act 2016 (CA
2016) read with section 348 and 350. Essentially this means that leave of the
court is required.

Plaintiff's reply

[5] In essence, the reply of the Plaintiff in enclosure 71 is that enclosure 1 is

primarily an oppression action filed under section 346 of CA 2016 where leave is
not required, no objection from the Plaintiff such that there is estoppel and
unexplained and inordinate delay of 5 months after the filing of the OS.

[6] A notice of intention to refer to the Plaintiff's affidavits in support of and

reply to enclosure 1 which were enclosures 22 and 28, was also filed.

The 1st Defendant's response

[7] In enclosure 71, the 1st Defendant's response was that estoppel does not
arise and that the Plaintiff cannot reply on it to evade compliance with a
mandatory statutory provision, no delay and it had reserved its rights to oppose
the OS on procedural and substantive grounds.

Analysis and finding

[8] it was always the Plaintiff's position that hers was an oppression suit
premised on 3 impugned acts of the Defendants namely misappropriation of
monies, appointment of the 2nd Defendant as director of the 3rd Defendant
company and failure to hold EGM. The mere fact that the same set of
circumstances might additionally support a derivative action is no defence to the
oppression action. This was the proposition in Re Kong Thai Sawmill (Miri) Sdn
Bhd [1978] 1 LNS 170; [1978] 2 MLJ 227 at page 229 that:

"The Malaysian section, on the other hand, requires (under sub-section 1(a)) a
finding of "oppression" or "disregard", and then leaves to the court a wide
discretion as to the relief which it may grant, including among the options that of
winding the company up.

... if a case of "oppression" or "disregard" is made out, the section applies and it
is no answer to say that relief might also have been obtained in a minority
shareholders' action.".

[9] It was also argued that misappropriation of monies was oppression with
reference to Chiew Sze Sun v. Cast Iron Products Sdn Bhd [1994] 1 CLJ
157 and Dato' Oon Ah Baa @ Boon Pak Leong v. Eagle & Pagoda Brand Teck Aun
Medical Factory Sdn Bhd [2003] 1 LNS 537; [2004] 2 MLJ 340. In Dato
Oon (supra ) it was stated at page 360:

"... the respondents have been shown to have misappropriated funds belonging
to the first respondent and there have been shown to this court/ instances of
oppression of the majority shareholders.

The respondents, individually and/or collectively have shown to have acted mala
fide by committing oppression on the minority, and misappropriating monies and
behaving in such a manner as to act against the interest of the petitioners and
their family members...".

[10] In as much as the above are certainly the correct positions in law, the Court
was inclined to accept the 1 st Defendant's submission that one had to look at
what was the injury alleged and the remedy being sought by the Plaintiff.

[11] This all starts with the rule in Foss v. Harbottle [1843] 67 ER 189 as stated
in Edwards v. Halliwell [1950] 2 All ER 1064 at 1066-
"The rule in Foss v. Harbottle, as I understand it, comes to no more than this.
First, the proper plaintiff in an action in respect of a wrong alleged to be done to
company or association of persons is prima facie the company or assocation of
persons itself...".

This rule is the consequence of the fact that the company is

a separate legal entity.

[12] Even a diminutive loss in the value of the shares does not entitle the Plaintiff
to sue. In Prudential Assurance Co. Ltd v. Newman Industries Ltd And Others (No.
2)[1982] it was stated at pages 366 to 367:

"... But what he cannot do is to recover damages merely because the company in
which he is interested has suffered damage. He cannot recover a sum equal to
the diminution in the market value of his shares, or equal to the likely diminution
in dividend, because such a "loss" is merely a reflection of the loss suffered by
the company. The shareholder does not suffer any personal loss. His only "loss"
Is through the company, in the diminution in the value of the ne assets of the
company, in which he has (say) a 3 percent shareholding. The Plaintiff's shares
are merely a right of participation in the company on the terms of the articles of
association. The shares themselves, his right of participation are not directly
affected by the wrongdoing. The Plaintiff still holds all the shares in his own
absolutely unencumbered property.

... A personal action would circumvent the rule in Foss v. Harbottle [1843] 67 ER
189 and that rule is not merely a tiresome procedural obstacle placed in the path
of a shareholder by a legalistic judiciary. The rule is the consequence of the fact
that a corporation is a separate legal entity. Other consequence are limited
liability and limited rights. The company is liable for its contracts and torts; the
shareholder has no such liability. The company is liable for its contracts and
torts; the shareholder has no such liability. The company acquires causes of
action for breaches of contract and for torts which damage the company. No
cause of action vests in the shareholder...".

[13] With regard to the proposition that where a company suffers loss, only it
may sue, it was stated in Johson v. Gore Wood & Co (a firm ) [2002] 2 AC 1 at
pages 46 to 47:

"The position is, however, different where the company suffers loss caused by
the breach of a duty owed both to the company and to the shareholder. In such
a case the shareholder's loss, in so far as this is measured by the diminution in
value of his shareholding or the loss dividends, merely reflects the loss suffered
by the company in respect of which the company has its own cause of action. If
the shareholder is allowed to recover in respect of such loss, that either there
will be double recovery at the expense of the defendant or the shareholder will
recover at the expense of the company and its creditors and other shareholders.
Neither course can be permitted. This is a matter of principle; there is no
discretion involved. Justice to the defendant requires the exclusion of one claim
or the other; protection of the interests of the company's creditors requires that
it is the company which is allowed to recover to the exclusion of the shareholder
".

[14] The cases above thus set the backdrop to enclosures 1 and 63 as to
oppression action and derivative action. Rinota Construction Sdn Bhd v. Mascon
Rinota Sdn Bhd & Ors [2018] 2 CLJ 129; [2018] 1 MLJ 141 stated at pages 152 and
153:

"[33]... The derivative action and the minority oppression petition are not
mutually exclusive and there may be circumstances which give rise to both a
derivative action and an oppression proceeding, but they remain distinct
remedies with separate rationales and statutory functions.

[34] The essential difference between the derivative and the minority oppression
petition is that:

(a) a minority oppression petition deals with action by the minority controllers
where the company cannot be petitioner and is only a nominal defendant; and

(b) by contrast a derivative action is brought by a minority shareholder for and

on behalf of the company to deal with wrongs done to the company and for the
benefit of the company e.g. to recover for the company assets off from the
company.".

[15] Ultimately the Singapore Court of Appeal case of Ho Yee Kong v. Sakae
Holdings Ltd and Other appeals and other matters [2018] 2 SLR 333 sought to lay
down at page 379-

"... the appropriate analytical framework to ascertain whether a claim that is

being pursued under s. 216 is an abuse of process is as follows:

(a) Injury

(i) What is the real injury that the plaintiff seeks to vindicate?

(ii) Is that injury distinct from the injury to the company and does it amount to
commercial unfairness against the palintiff?

(b) Remedy

(i) What is the essential remedy that is being sought and is it a remedy that
meaningfully vindicates the real injury that the plaintiff has suffered?

(ii) Is it a remedy that can only be obtained under s. 216?

Note: section 216 is the oppression provision and section 216A the derivative
action.

[16] At page 369 it was noted too as follows:

"Section 216 provides a remedy for a wrong suffered by a member of a company

in its personal capacity. An action thereunder is brought by the member in its
own name to protect its interest as a member of the company. In contrast, s.
216A allows a member of a company, with the court's leave, to bring derivative
action in the name of the company where a wrong is alleged to have been done
to the company (that is, a corporate wrong) and the controlling directors refuse
to bring an action to remedy that wrong.".

[17] Putting all those cases and the analytical framework to the facts of
enclosure 1, the injury was suffered by the 3 rd Defendant company for which the
remedies in prayers A and B are claimed by the Plaintiff for the 3 rd Defendant
Company. The Plaintiff suffered no actionable injury in her personal capacity but
claims remedies for the 3rd Defendant company.
[18] The Plaintiff claims her prayers A and B arise from the oppressive conduct
perpetuated against her. However, the Plaintiff is not seeking a remedy for direct
loss to her personally as a shareholder for the alleged misappropriation in
prayers A and B of enclosure 1.

[19] The Plaintiff's claim in prayers A and B are thus derivative claims. The
Plaintiff ought to have availed herself to the provisions of section 347 and 348 of
the CA 2016 as follows:

"347. Derivative proceedings

(1) A complainant may, with leave of the Court initiate, intervene in or defend a
proceedings on behalf of the company.

...

(2) Proceedings brought under this section shall be brought in the company's
name.

...

[348] Leave of Court

(1) An application for leave of the Court under section 347 shall be made to the
Court without the need for an appearance to be entered.

...".

[20] It was contended that there was a statutory exception to the rule in Foss v.
Harbottle as stated in Abdul Rahim Bin Aki v. Krubong Industrial Park (Melaka)
Sdn Bhd [1995] 4 CLJ 551; [1995] 3 MLJ 417. At page 427, the following was
stated:

"... we refer to the statutory exception. This is to be found in the far- reaching
and extremely beneficial remedy housed in s. 181 of the Companies Act 1965. It
may, on reflection, be inaccurate to refer to it as an exception of the rule now
under consideration. In truth it is an abrogation of the rule itself in those
circumstances to which the section applies.".
[21] However this again goes back to the injury suffered and remedy claimed, as
stated earlier.

[22] On estoppel, it was held in Ekuiti Setegap Sdn Bhd v. Plaza 393
Management Corp (established under The Strata Titles Act 1985) [2019] 2 CLJ
592; [2018] 4 MLJ 284 at paragraph 74:

"... where the plaintiff's claim is illegal for being in contravention of the STA,
estoppel cannot be raised against the defendant notwithstanding the fact that
the defendant's representative was present at the first AGM and had not
objected to the rate levied on the basis of square foot."

Note : STA is Strata Titles Act 1985

[23] Similarly in this instance where the Plaintiff had commenced the OS for
oppression when it ought to have been a derivative action, the relevant
provisions in the CA 2016 had been contravened. Estoppel cannot now thus
operate.

[24] The same reasoning applies too, for the issue of delay. In any event, the
1st Defendant had very early on reserved its right to oppose the OS on
procedural and substantive grounds.

[25] The Court was thus minded to strike out enclosure 1 as:

(i) the Plaintiff did not suffer any actionable loss which vests a cause of action in
her as opposed to the 3rd Defendant Company. The Plaintiff does not have an
actionable cause of action for restitution of sums allegedly misappropriated
claimed in prayers A and B of enclosure 1;

(ii) it is scandalous and frivolous and vexatious for the Plaintiff to seek remedies
as claimed in prayers A and B of enclosure 1 for and on behalf of the
3rdDefendant company when she is not entitled to sue for the alleged losses
suffered by a separate entity i.e. the 3rd Defendant company and not her
personally; and

(iii) it is an abuse of process to have commenced a suit in which remedies are

claimed for the 3rd Defendant company without the approval and sanction of the
Court pursuant to sections 347-350 of the CA 2016.

[26] In a situation where leave of the Court was not obtained for the derivative
action, it rendered the OS in enclosure 1 a plain and obvious case for striking out.
The Court only needs to refer to the oft cited case of Bandar Builder Sdn Bhd &
Ors v. United Malayan Banking Corporation Bhd [1993] 4 CLJ 7; [1993] 3 MLJ 36.

CONCLUSION

[27] For the above reasons, enclosure 63 to strike out the OS was allowed.

Dated: 28 OCTOBER 2019

(SEE MEE CHUN)

Hakim Mahkamah Tinggi
Johor Bahru