Sharon Chong explains the High Court's interpretation of the time frame stipulated in Section 181B(2) of the Companies Act
In a recent case of Ng Hoy Keong v Chua Choon Yang & Ors  9 MLJ 145, the High Court granted leave under Section 181A of the Companies Act 1965 (“the Act”) to the Plaintiff to defend a legal action filed against a company and ordered that the 30 days’ notice period specified in Section 181B(2) of the Act be abridged.
It is believed that this case is the second reported Malaysian decision (after the High Court and Court of Appeal decisions in Mohd Shuaib Ishak v Celcom (Malaysia) Berhad) on a statutory derivative action under Section 181A of the Act.
The Plaintiff and the 1st and 2nd Defendants were directors of the 3rd Defendant, a company (“Company”). The Plaintiff and the 1st Defendant each held 50% of the issued and paid up capital of the Company.
The Company was incorporated to facilitate a joint venture partnership between the Plaintiff and a certain Patrick Wong Ha (“Patrick”) in a property development project. Satujaya Sdn Bhd (“Satujaya”), a company owned by Patrick, would act as the main contractor of the project.
The Plaintiff and Patrick contributed equally to the issued share capital of the Company but Patrick's shares were initially held by his wife as his nominee and were subsequently transferred to the 1st Defendant.
Through subsequent events, the Plaintiff allegedly discovered that a payment of RM500,000 had been approved by Patrick and the 1st and 2nd Defendants to a director and shareholder of Satujaya, using a dormant company. The Plaintiff thereafter filed an oppression petition and obtained an ad-interim order whereby Patrick and the 1st and 2nd Defendants were required to put the Plaintiff on notice of all outgoing payments to be made by the Company.
Subsequently, the Plaintiff obtained an interlocutory injunction inter alia to restrain Patrick and the 1st and 2nd Defendants from operating certain banking accounts on behalf of the Company without the prior approval of the Plaintiff.
Between March and April 2008 Satujaya issued letters of demand to the Company claiming the sum of RM5,814,704.57 as progress claims in respect of work done in the project. The Plaintiff refused to pay the progress claims on the grounds that the claims were inflated. Satujaya filed a suit (“the Satujaya suit”) and after obtaining judgment in default, initiated garnishee proceedings against the Company.
The Plaintiff gave only 9 days written notice to the 1st and 2nd Defendants of his intention to apply for leave of the Court to defend the Satujaya suit on behalf of the Company.
Thereafter the Plaintiff filed an application in Court to seek various reliefs including the following orders:
(i) that the 30 days’ notice to the directors of the Company pursuant to Section 181B(2) of the Act, be abridged; and
(ii) that the Plaintiff be granted leave to defend the Satujaya suit and/or counterclaim or issue fresh proceedings, on behalf of the Company.
Hinshawati Shariff JC was of the view that 2 issues required consideration in respect of the Plaintiff's application, namely:
(1) Whether the Court had the discretion to order that the 30 days' notice under Section 181B(2) of the Act be abridged ("First Issue"); and
(2) Whether or not leave should be granted to the Plaintiff under Section 181B(2) of the Act ("Second Issue").
THE FIRST ISSUE
Section 181A of the Act inter alia permits a complainant (which, as defined, includes a member or a director of a company), with leave of the Court, to bring, intervene in or defend an action on behalf, and in the name, of a company. Section 181B(2) requires the complainant to give 30 days' written notice to the directors of the company of his intention to seek leave under Section 181A of the Act.
Counsel for the Defendants submitted that the requirement for 30 days' notice under Section 181B(2) is mandatory and that the Court had no discretion to either waive or abridge or enlarge the period of notice. In support of his submission, counsel drew the attention of the Court to the corresponding sections of the Hong Kong, Singapore and Canadian legislation which contained provisions that expressly empowers the Court to abridge the period or dispense with the notice altogether.
On the other hand, counsel for the Plaintiff submitted that Section 181B(2) must be read together with Section 355(4) of the Act which inter alia permits the Court to enlarge or abridge time for doing any act or taking any proceeding allowed or limited by the Act upon such terms, if any, as the justice of the case may require.
Although the learned Judicial Commissioner accepted the submissions by counsel for the Defendants on the comparison between Section 181B(2) and those of the comparative jurisdictions, she reached a different conclusion. In the opinion of Hinshawati JC, the fact that the Hong Kong, Singapore and Canadian legislation have specific provisions to empower the court to grant abridgment of time or dispense with notice appear to reiterate the point that an application need not necessarily be shut out from obtaining this relief simply because it had not complied with the time specified for the giving of the relevant notice.
The learned Judicial Commissioner held as follows:
(1) The time frame set out in Section 181B(2) is not mandatory;
(2) The intention of Section 181B(2) is to ensure that the directors are not taken by surprise and therefore the applicant must notify the directors of his intention to seek leave of the Court;
(3) The underlying principle must be that so long as no injustice has been caused to a party as a result of the non-compliance of the other party, then such non-compliance must be treated as a mere irregularity.
The learned Judicial Commissioner further agreed with the submission by counsel for the Plaintiff that Section 355(4) is a provision of general application and empowers the Court to enlarge or abridge time for the doing of any act allowed or limited by the Act, such as that provided by Section 181B(2).
THE SECOND ISSUE
In respect of the Second Issue, the Court granted leave to the Plaintiff to defend the Satujaya suit. In coming to her decision, the learned Judicial Commissioner relied heavily on the principles laid down by the High Court in Mohd Shuaib Ishak v Celcom (Malaysia) Bhd  5 MLJ 857.
Amongst the principles laid down by the High Court in Mohd Shuaib, and adopted by Hinshawati JC, is that it is sufficient for the Plaintiff to demonstrate a prima facie case in respect of the complaint. The reasoning of the learned Judicial Commissioner on the Second Issue is no longer valid as the Court of Appeal in Mohd Shuaib  1 LNS 560 has in its decision handed down on 7 June 2010 (after Hinshawati JC had delivered her judgment in this case on 25 March 2010) categorically rejected the "prima facie" test and held that an applicant must go into the merits and satisfy the Court that he has a good cause of action and a reasonable prospect of success.
Although the "prima facie" test applied by Hinshawati JC in this case has been superseded by a more stringent test laid down by the Court of Appeal in Mohd Shuaib, the decision of the learned Judicial Commissioner remains noteworthy in that non-compliance with the 30 days' time period stipulated in Section 181B(2) may only be an irregularity and the Court may exercise its powers under Section 355(4) of the Act to abridge the time frame stipulated in that provision.
SHARON CHONG (
Sharon is an Associate with the Dispute Resolution Division of SKRINE. She is a graduate of the University of London.