Abdul Rahman bin Aki v Krubong Industrial Park (Melaka) Sdn. Bhd.

Court outlined requirement to succeed in claiming under FvH to be caught under the exceptions.
Have to prove control of the company, taking action on behalf of the company. No necessity
to prove dishonesty.

Hickman v Kent or Romney Marsh Sheep-breeders’ Association

Facts

Article 9 of the Kent or Romney Marsh Sheepbreeders’ Association’s Articles of Association stated
that any disputes between the Association and a member should go to arbitration before court. Mr
Hickman complained about the Association’s refusal to register his sheep in the “flock book”. He was
under threat of being expelled – he commenced proceedings in the High Court.

Issues

Was Hickman prevented by Article 9 from commencing court proceedings without prior arbitration?

Held

A member of the association of the company in question, was not entitled to start court proceedings
against the company, without first submitting the dispute to arbitration. The significance of this
decision was that the company could enforce articles of association against the member. Thus,
articles of association is a contract between the company and the members and equally this is a
contract between the members and the company.

Tan Guan Eng v Ng Kweng Hee & Ors [1992] 1 MLJ 487

Facts

The first plaintiff is a shareholder and director of the ninth defendant, Dragon Enterprises Sdn Bhd
('Dragon'). Dragon is the holding company and controlling shareholder of Thean Seng Co Sdn
Bhd('TSS'), the eighth defendant. Dragon is in turn a subsidiary of an incorporated investment
company called BH Low Holdings Sdn Bhd ('BHL'). The first plaintiff is also a majority shareholder and
director of BHL. The first and second defendants were the directors of both Dragon and TSS. Notice
of TSS's extraordinary general meeting ('EGM') was given to pass a resolution to increase the issued
and paid-up capital of TSS by way of a rights issue. The plaintiffs obtained an ex parte interlocutory
injunction to restrain the holding of the EGM, alleging that the calling of the EGM by the first to
seventh defendants was not a proper or bona fide exercise of their powers as directors of TSS
because the calling of the EGM was to effect a change in the control of TSS in interest or favour of
the first to seventh defendants. The defendants applied to discharge the interlocutory injunction.
The defendants claimed that the purpose of increasing TSS's capital was to finance the cost of
developing TSS's property and to reduce TSS's bank borrowings. The defendants argued that the first
plaintiff had no locus standi to sue against TSS because the first plaintiff was not its shareholder. The
plaintiffs urged the court to lift the corporate veil of TSS and Dragon because thefirst and second
defendants were in de jure control of Dragon and were in de facto control of TSS and that they
had placed themselves in a position of conflict of interest when they promoted their own
personal interest. The second plaintiff argued that he had locus standi because since the injury
alleged was personal to him as a member of TSS, the rule in Foss v Harbottle did not apply.

Issue
1.Whether calling of TSS's EGM by the first to seventh defendants was a proper or bona fide exercise
of their powersas TSS's directors.

2.Whether plaintiff has locus standi to sue subsidiary company

3.Whether issue of locus standi should be decided as a preliminary point or at conclusion of trial

Held

The court by dismissing the application to discharge injunction held that,

(1) The issue whether calling of TSS's EGM by the first to seventh defendants was a proper or bona
fide exercise of their powers as TSS's directors, was neither just nor convenient to be decided
without the process of a full trial.

(2) The term 'locus standi' means entitlement to judicial relief apart from the questions of the
substantive merits and the legal capacity of a plaintiff.

(3) In deciding the question of locus standi, the court will proceed on the basis that allegations in the
statement of claim and in the documents relied upon by the plaintiffs are true. The jurisdiction
to uphold a plea of no locus standi should only be exercised very carefully in circumstances where
there is no possibility of doubt.

(4) The traditional view of 'control' of a company is one of ownership but the new view considers
who has de facto control of a company. In this case, His Lordship pointed out that shareholding may
be one index to determine the question of control. It was held that, “The obvious and no doubt the
easiest way of determining whether the wrongdoer has control of a company is to have regard to
their shareholdings. If the majority of the shares is held by them, then it goes without saying that
they are in control of the company; but if that is not the case, it does not necessarily follow that they
are not in control, for the court may go behind the apparent ownership of the shares, in order to
determine whether the wrongdoers do in fact control of the company”. “Apparent ownership” could
be or perhaps, even an outsider, through the use of nominee directors, interlocking shareholding,
and agreement of the shareholders or the use of proxies.

(5) Although each company within a group of companies is a distinct entity, in certain circumstances
courts have treated a group of companies as a single corporate entity. In the circumstances of this
case a prima facie case for piercing the corporate veil had been established.

(6) Both of the plaintiffs had established a prima facie case of locus standi to maintain this suit; there
are also serious questions of law and fact to be tried.

Re Kong Thai Sawmills (Miri) Sdn Bhd

▪The company was a family company held by 6 brothers. The action was brought by Sung against his
brothers, Siew and Siong and the company. Sung owned 2.5% shares while Siew and Siong together
owned 63.5%. shares. Siew was the chairman of the board and Siong was a director. Sung was a
director, having left the board prior to the action. Some of the relief sought were:

•a. Loan made by the company to one Harun Arifin;

•b. The purchase of yacht by the company;

•c. Donations made to certain political parties; and

•d. Drawings of company’s funds by Siew and Siong.

Held

▪For (a), the action failed as there were insufficient evidence to substantiate allegation of
wrongdoings.

▪For (b), the purchase of the yacht was a matter within the company’s capacity and if the members
have chosen to approve expenditure of doubtful value, that was their choice.

▪For (c), the donations had been validated by the board and general meeting.

▪For (d), the trial judge had found that there was misappropriation of funds by Siew and Siong,
however before the case was finally disposed of, both of them repaid the amount back to the
company.

▪The Privy Council held there was no oppression as all the conduct was not ongoing conduct.

Celcom (M) Bhd v Mohd Shuib Ishak

FACTS

The Plaintiff is a former member of Celcom (Malaysia) Bhd (“Celcom”). He applied for leave to sue
the directors of Celcom, the ultimate holding company of Celcom i.e. Telekom Malaysia Bhd (“TM”),
Telekom Enterprise Sdn Bhd (“TESB”) as well as the directors of TM and TESB.

The proposed derivative action was based on the following facts (“Proposed Action”):

Celcom and DeTeAsia ("DTA") entered into an Amended and Restated Supplemental Agreement
(“ARSA”) whereby Celcom agreed that it would not merge its business to allot or issue new shares
without DTA's consent and that in default thereof, Celcom would procure a third party to acquire
DTA's shares in Celcom at RM7.00 per share ("Buy Out Provision").

Celcom entered into an agreement with TM to acquire TM's entire shareholding in Telekom Cellular
Sdn Bhd (“TM Cellular”) for a consideration which was satisfied wholly by the issue of new fully-paid
Celcom shares to TESB at an issue price of RM2.65 per share ("SPA"). Celcom did not obtain the
consent of DTA for the transaction under the SPA.

The issue of new Celcom shares under the SPA gave rise to an obligation for TESB to make a
Mandatory General Offer (“MGO”) to acquire all the remaining shares in Celcom at an offer price of
RM2.75 per share.

As TESB acquired 96.32% of Celcom’s shareholding vide the MGO, it exercised the right of
compulsory acquisition under Section 34 of the Securities Commission Act, 1993 ("SCA") to acquire
the remaining Celcom shares. The Plaintiff’s Celcom shares were acquired by TESB at the price of
RM2.75 per share pursuant to this compulsory acquisition.

DTA commenced arbitration proceedings against Celcom for breach of the Buy Out Provision and
was awarded damages of approximately USD177 million and costs of USD1.23 million. Celcom paid
the arbitration award sum (“Award Sum”) in full.
The Plaintiff contended that the Celcom directors had caused Celcom to breach the ARSA by
procuring Celcom to enter into the SPA without DTA's consent and had thereby caused loss to
Celcom by reason of the liability it incurred for the Award Sum.

The Plaintiff further contended that by causing Celcom to breach the Buy Out Provision, the Celcom
directors had caused the MGO to take place at RM2.75 per share instead of RM7.00 if TM had
offered to buy DTA's Celcom shares pursuant to the Buy Out Provision. Thus, it was alleged that the
Celcom Directors had cause loss to Celcom's former shareholders by causing the MGO to take place
at a lower price of RM2.75 per share instead of RM7.00 per share.

THE HIGH COURT’S DECISION

The High Court held that the Plaintiff was a competent complainant for the following reasons:

the Plaintiff's application relates to the circumstances in which he ceased to be a member of Celcom;
and the nexus (connection) between the Plaintiff ceasing to be a member of Celcom and the
circumstances of the proposed claim could easily be seen from the events that culminated in his
shares being acquired through the compulsory acquisition scheme under Section 34 of the SCA.

THE COURT OF APPEAL’S DECISION

The Court of Appeal ("Court") held that leave to commence a statutory derivative action under
Section 181A must not be lightly granted and that the High Court Judge had erred by adopting a low
threshold of merely determining if there existed a prima facie case. The Court ruled that the
provision must be given a restrictive interpretation and an applicant must strictly satisfy each
requirement stipulated therein.

Amongst other requirements, it would be necessary for an applicant to satisfy the court that (i) he
has the locus standi (legal status) to initiate the proceedings; (ii) that he is acting in good faith; and
(iii) it appears prima facie to be in the best interest of the company that the application for leave be
granted.

Locus standi

On the issue of locus standi under Section 181A(4)(b), the Court found that the Plaintiff failed to
prove a direct causal nexus between the complaint and how the Plaintiff ceased to be a member of
Celcom. The Court took the view that the alleged breach of the ARSA resulted in the Award Sum
being paid to DTA but did not cause the Plaintiff to cease to be a member of Celcom.

Good faith

On the issue as to whether the Plaintiff was acting in good faith within the meaning of Section
181B(4)(a), the Court adopted the inter-related two-fold test in the Australian case of Swansson v
R.A. Pratt Properties Pty Ltd & Anor [2002] NSWSC 583, that is:

firstly, whether the applicant honestly believes that a good cause of action exists and has a
reasonable prospect of success; and

secondly, whether the applicant is seeking to bring the derivative suit for such a collateral purpose
as would amount to an abuse of process.

In respect of the first test, Palmer J in Swannson clarified that a mere bald assertion would not
suffice and an applicant may be disbelieved if no reasonable person in the circumstances would hold
that belief.
The Court then referred to the following facts:

A committee of independent directors ("Committee") had been constituted as TM’s and DTA’s
nominee directors on Celcom's board were in a position of conflict of interest;

The Committee had sought independent legal advice on whether the Buy Out Provision in the ARSA
was enforceable;

The Committee had been advised that there were a number of grounds in the Buy Out Provision that
violated Malaysian law, amongst which was that there was no commercial or legal justification why
the Celcom shares were priced at RM7.00 each in the Buy Out Provision when the market price of
such shares was around RM2.31 per share at the material time.

In the above premises, the Committee had exercised prudent business and commercial judgment
and decided to approve the SPA without DTA’s consent.

The Court agreed with the submission by Celcom's counsel that the above-referred facts showed
that the decision of the independent directors had been an exercise of the prudent business
judgment rule by a completely honest and disinterested section of Celcom's board. Accordingly, the
Court declined to interfere and substitute its own judgment in place of what it held to be a proper
and prudent business and commercial decision of the directors.

The Court also considered the fact that the Plaintiff had not made any averment in his intended
Statement of Claim that the independent directors had conspired with TM. The Court was of the
further view that the Proposed Action did not have any reasonable prospect of success.

The Court further found that the Plaintiff was actuated by an ulterior motive in making the leave
application. This was because the Plaintiff had instituted a separate personal action which was
virtually identical to the derivative action and with identical reliefs sought. The Court ruled that the
law does not allow the bringing of a personal action against the company and simultaneously
seeking leave to bring a concurrent and inconsistent statutory derivative action on the same cause of
action.

In concluding its findings on the requirement for good faith, the Court held that the Plaintiff failed to
discharge the burden of proving good faith on a balance of probabilities and had been guilty of an
abuse of process.

Reasonable prospects of success

The Court then considered the requirement stipulated in Swannson that there must be reasonable
prospects of the derivative action being successful.

The Court held that the High Court Judge had erred in concluding that if Celcom had complied with
the Buy Out Provision under the ARSA, the MGO had to be made at RM7.00 per share. This was
because the obligation of the offeror in a mandatory takeover is to pay the highest price during a 6
month period preceding the offer pursuant to Section 20(1) of the Malaysian Code on Take-overs
and Mergers. As it was undisputed that the highest market price of Celcom's shares at the time of
the SPA was only RM2.75 per share, the Court was of the view that there was no reasonable
prospect of the Plaintiff's claim being successful.

Prima facie in the best interest of the company

The Court proceeded to deal with the requirement under Section 181B(4)(b) of the Act that the
Proposed Action should prima facie be in the best interest of the company. The Court adopted the
interest test laid down in the Singapore case of Pang Yong Hock & Anor v PKS Contracts Services Pte
Ltd [2004] SGCA 18 which held that a company may have genuine commercial considerations for not
pursuing certain claims, even if those claims may be meritorious.

The Court cited a passage from the Canadian case of Ontario Ltd v Bernstein [2000] OTC Lexis 3480
where the following statement is attributed to Justice Brandeis in United Copper Securities So. et. al
v Amalgamated Copper Co. et. al [1917] 244 U.S. 261 at p. 263-4:

"Whether or not a corporation shall seek to enforce in the courts a course of action for damages is,
like other business questions, ordinarily a matter of internal management and is left to the discretion
of the directors, in the absence of instruction by vote of the stockholders. Courts interfere seldom to
control such discretion intra vires the corporation, except where the directors are guilty of
misconduct equivalent to a breach of trust or where they stand in a dual relation which prevents
unprejudiced exercise of judgment."

In the opinion of the Court, the Proposed Action sought to unwind the MGO more than 6 years after
the event would be a laborious, costly and complicated process. It would have a disastrous effect on
Celcom’s credibility and market reputation and could cause substantial hardships to shareholders
who had expended the sales proceeds from the MGO. Adding to the complication would be the fact
that there could have been many changes in the shareholders during the intervening period.

In the above premises, the Court found that there was no reasonable commercial sense in the
Proposed Action as prima facie, it was apparent that the whole unwinding exercise would be
counter-productive to the interest of Celcom.

Conclusion

The Court in Celcom (Malaysia) Berhad v Mohd Shuaib Ishak has adopted a narrow interpretation of
Section 181A of the Act and has made it clear that leave will not be lightly granted to an applicant to
commence a statutory derivative action. It will no longer be sufficient for an applicant to satisfy the
Court that he has a prima facie case. Instead, he must satisfy the following requirements in order to
succeed in obtaining leave to commence such a derivative action:

the applicant must, if he is a former member, establish a direct causal nexus between the application
and the circumstances in which he ceased to be a member;

he must satisfy the court that he is acting in good faith. To discharge this burden, he is required to go
into the merits of the proposed action and to satisfy the court that there is a good cause of action
and a reasonable prospect of success;

the derivative action must not be initiated for a collateral purpose as would amount to an abuse of
process; and

he must satisfy the court that the derivative action appears prima facie to be in the best interest of
the company. In this regard, the court will not interfere with commercial decisions made by the
directors except where the directors are guilty of misconduct akin to a breach of trust or where
conflicts of interest exist which prevent them from exercising their judgment in an unprejudiced
manner.

The Court has set a higher threshold to be satisfied by an applicant who wishes to commence a
statutory derivative action under Section 181A of the Act.
Ong Keng Huat v Fortune Frontier

Facts

The plaintiff filed an application for leave under s. 181A of the Companies Act 1965 ('the Act') to
bring a statutory derivative action on behalf of the first defendant company against parties he
deemed responsible for the trespass and unlawful occupation of the first defendant's land. The
plaintiff and the second defendant equally owned shares and were the only directors of the first
defendant. Disputes arose when the second defendant's son ('TWR'), who was the owner of a
landed property adjacent to the first defendant's landed property, rented the first defendant's land
to China State Construction since the latter needed a larger space to house its workers and store
machineries. TWR and China State Construction entered into a tenancy agreement in respect of
TWR's land and the first defendant's land, the latter by way of a sub-tenancy in TWR's capacity as its
purported tenant. However, the plaintiff alleged, inter alia, that (i) no valid tenancy agreement was
entered into in relation to the first defendant's land; (ii) the first defendant's land was rented at a
lower rate compared to TWR's land; (iii) China State Construction paid the rental to TWR and the
first defendant did not receive the rental payments; (iv) there was a failure to convene a board of
directors' meeting; (v) the second defendant refused to cooperate with and assist the plaintiff to
protect the first defendant from suffering losses due to China State Construction and TWR's actions;
and (vi) there was no resolution issued by the board of directors of the first defendant authorising
the first defendant or any other representative to deal with China State Construction and TWR in
respect of the first defendant's land. The issues that arose for consideration were (a) whether the
plaintiff was a complainant under s. 181A of the Act; (b) whether the plaintiff acted in good faith
unders. 181B(4)(a) of the Act; (c) whether it was in the best interest of the company as per s.
181B(4)(b) of the Act for leave to be granted; (d) whether the plaintiff must be a minority
shareholder to initiate an action under s. 181A; (e) whether the insider wrongdoer benefited from
the default in a s. 181A action; and (f) whether s. 181A of the Act could be invoked to permit a
plaintiff, on behalf of the company in a derivative action, to commence action against a third party
wrongdoer against whom the company may have a cause of action related to the alleged
wrongdoing. The second defendant, however, argued that the plaintiff had been involved in the
negotiations and had orally agreed with the material terms of the tenancy agreement prepared by
the plaintiff's solicitors in relation to the first defendant's land. As such, the second defendant
counterclaimed for a declaration that there was a valid tenancy agreement between the first
defendant and TWR.

Issues

Whether plaintiff as company director could initiate proceedings on behalf of company

Whether plaintiff acted in good faith - Whether plaintiff must be a minority shareholder to initiate
action

Whether second defendant as company director assisted third party to commit trespass on
company's land - Whether a valid tenancy agreement entered into between parties

Whether action could be brought against third party - Conduct of second defendant - Whether
resulted in breach of duty for conflict of interest

Whether it was in best interest of company for leave to be granted

Held
(1) A derivative action is instituted by a member of a company premised on a cause of action which
belonged to the company. The provisions on statutory derivative action embodied in ss. 181A to
181E of the Act are designed to make it possible for a shareholder to overcome the limitations of the
common law derivative actions. Section 181A, however, expressly provides that the right to bring
common law derivative action is not abrogated (Abdul Rahim Aki v. Krubong Industrial Park (Melaka)
Sdn Bhd & Ors; refd).

(2) The plaintiff was a director of the first defendant and had fulfilled the requirement under s.
181A(4)(c) of the Act which refers to "any director of the company". The raison d'etre of statutory
derivative action was the empowerment of shareholding related interest, permitting a minority
shareholder to institute an action on behalf of the company.

(3) The plaintiff had established good faith in accordance with s. 181B(4)(a) of the Act. The plaintiff
honestly believed that a good cause of action existed and had a reasonable prospect of success.
Further, the intended suit was not instituted for a collateral purpose. Whilst the primary private
motivation of the plaintiff was to seek a higher rental for the land, that in itself was neither
surprising nor improper given his status as a 50% shareholder of the first defendant. The plaintiff had
been consistent in insisting for high rentals. The plaintiff had a reasonable prospect of his claim on
behalf of the first defendant being successful. Further, the plaintiff showed that instituting the
derivative action was prima facie in the best interest of the first defendant.

(4) The second defendant's action and conduct of being supportive to TWR were not by themselves
necessarily improper but constituted a dereliction in his fiduciary duty since, inter alia, (i) the
tenancy directly involved the interest of the first defendant; and (ii) the second defendant did not
cooperate with the plaintiff to have a formal board of directors' meeting or an EGM convened as
requested by the plaintiff. The second defendant did not appear to demonstrate a conduct
consistent with that expected of a responsible director and fiduciary of a company when faced with
the situation. As a director, the second defendant stood in a dual relation which prevents
unprejudiced exercise of judgment.

(5) It is strictly not necessary for a plaintiff to be a minority shareholder in order to institute s. 181A
of the Act. Even without the allegation of the defaulting director benefiting from the breach, a mere
breach of duty of care by the director that caused loss to the company was sufficiently actionable
under s. 181A. Further, it was not necessarily the case that an action under s. 181A could only be
taken if the insider benefited from the wrong done to the company. The overriding focus of s. 181A
should be on pursuing a derivative action against those who had wronged the company, who often
were also but not necessarily the insiders who were preventing an action from being taken in the
first place. However, instances where third parties may be involved and participated in the
wrongdoing in collusion with insiders could not be discounted.

(6) It is not a legal requirement under s. 181A of the Act that the insider in default must be a party to
be sued by the plaintiff on behalf of the company. The crux of a derivative action is to allow a
complainant to seek leave for the company to institute a suit for a cause of action which has a
reasonable prospect of success which otherwise could not be pursued due to the involvement of a
wrongdoer insider having the ability to prevent the filing of the suit by the company.

(7) An action against third parties could be legally justified in principle if the cause of action against
third party arose from a breach by an insider or controlling element. Since derivative actions are for
situations where the controller wrongdoer prevents actions from being taken, derivative actions
would not be appropriate where (i) there were no such constraints; and (ii) the company decided
not to pursue against a third party wrongdoer if such decision was not in any way influenced by the
third party. There ought to be some form of collusion or acting in concert between the insider
wrongdoer and the said third party to invoke an action under s. 181A against the latter. A derivative
action under s. 181A may be instituted even against a third party wrongdoer if the wrong arose from
the default of an insider.

(8) The trespass by TWR and China State Construction was made possible by the breach of fiduciary
duty, or at least of a duty of care, on the part of the second defendant. As such, in addition to the
fulfilment of the requirements for leave under ss. 181A and181B of the Act, the derivative action by
the plaintiff, who was technically not a minority shareholder, on behalf of the first defendant, may
be commenced against TWR and China State Construction. Both were third parties who allegedly
committed trespass against the first defendant given the offending role of the insider second
defendant. The plaintiff was granted leave under s. 181A since he had satisfied the requirements of
s. 181B(4), to commence an action on behalf of the first defendant against TWR and China State
Construction.

Koh Jui Hiong v Ki Tak Sang

Facts

The petitioners collectively held 21.6875% while the respondents held 74.5625% of the equity of CIN
Holdings Sdn Bhd (the ninth petitioner) ('CH'). CH was an investment company, holding shares in
public listed companies, including 1,346,100 shares in Polymate Holdings Berhad ('Polymate shares').
The appellant, his wife ('the second respondent') and one Kivy Holdings Sdn Bhd ('the third
respondent') which the appellant controlled, collectively held 49.25% of the equity of CH. The
appellant, who was the Managing Director of CH was primarily responsible for the financial
management of CH. On 27 June 2002, an investigation revealed that the appellant had disposed of
446,100 of the Polymate shares without the authority of the Board or members of CH. The appellant
had also committed irregular financial transactions during his tenure as the Managing Director. The
trial court found that the petitioners had proved the alleged irregular financial transactions and that
the purported removal of the first, fourth and sixth petitioners as directors was for an ulterior
motive, namely to stifle the suit of CH against the appellant. Essentially, on those two grounds, the
trial court granted, inter alia, orders that: (i) declared the purported removal of the first, fourth and
sixth petitioners as directors and the appointment of a new secretary as null and void; (ii) ordered
the appellant to purchase the minority interest of the petitioners at RM4.2353 per share; and (iii)
ordered damages to be assessed. Damages were assessed by the same trial court who adjudged that
the loss suffered by CH was the difference between the quoted value of the 1,346,100 Polymate
shares as at 30 September 2009 (RM3,029,851) and the quoted value of those same said shares as at
20 March 2009 (RM209,518.03). The trial court awarded the difference (RM2,820,332.97) as the
quantum of damages, to CH. At the Court of Appeal, the first to eight respondents and the appellant
entered into a consent order which set aside the buyout order. The sole issue before the Court of
Appeal was the quantum of damages awarded to CH. The Court of Appeal held that CH was only
entitled to damages for those 446,100 Polymate shares disposed of by the appellant without
authority. The rest of the damages awarded by the trial court was set aside by the Court of Appeal
who held that it was not proved that CH could not deal with those Polymate shares without the
concurrence of the appellant. The Court of Appeal accordingly reduced the quantum of damages
awarded to CH, to the aggregate of RM1.13 for each of those 446,100 Polymate shares. Hence this
appeal by the appellant. The question arising for determination was whether an award of damages
can be made in a petition under s. 181(1) of the Companies Act 1965 ('the Act').

Issues

- Whether action properly commenced - Whether s. 181 Companies Act 1965 could be used to
outflank rule in Foss v. Harbottle

- Whether action properly instituted - Whether damages to be awarded

- Whether company itself can be petitioner

- Whether damages available remedy under s. 181(2) Companies Act 1965 - Whether damages to be
awarded

Held

(1) A petitioner who cannot demonstrate that his name appears on a company's register of members
at the date of presentation of the petition has no standing to invoke s. 181 of the Act. The petition of
a petitioner without standing would be struck out.

(2) CH had no standing under s. 181 of the Act. CH could have been but was not joined as a nominal
respondent. CH could not be a nominal petitioner. Yet, CH was the ninth petitioner, to pursue what
could only have been a derivative action.

(3) Damages to members is not amongst the reliefs mentioned in s. 181(2) of the Act. Section 181(2)
of the Act is a non-exhaustive list that does not limit other types of relief that the court could
fashion, with the view to bringing to an end or remedying the matters complained of. Authorities do
not support the argument that damages or compensation could not be awarded under s. 181 of the
Act.

(4) Since the buyout order had brought to an end all matters complained of, there was no longer any
'matter complained of' to be further remedied by any order of damages, declaration or injunction. In
any event, with the buyout order, the respondents could not have any further interest in the affairs
of CH which would belong, after the buyout order, to the majority. However, all those circumstances
were not considered in the exercise of discretion in granting the award of damages. On top of that, it
was also overlooked (i) that non-members who had no standing under s. 181 of the Act were joined
as the first and fourth petitioners; (ii) that CH who had no standing under s. 181 of the Act was
joined as a petitioner, (iii) that the respondents had brought a common law derivative action, if that
were the case, without naming CH as a nominal respondent; and (iv) that the respondents had
brought a statutory derivative action, if that were the alternate case, without the requisite leave of
court.

(5) There is a limit to the extent to which s. 181 of the Act could be used to outflank the rule in Foss
v. Harbottle. The order to be made must be made with a view to bringing an end or remedying the
'matters complained of' under s. 181 the Act. The derivative action elements should be an incident
of the matters complained of under s. 181 of the Act. It would be an abuse of s. 181 of the Act where
the nature of the complaint is misconduct rather than mismanagement.

(6) Especially with the setting aside, by consent, of the buyout order, what was left was the award of
damages obtained in a defectively instituted derivative action brought under s. 181 of the Act. Given
further that the order of damages should not have been granted in the first place, the order of
damages could not be defended.