Tag: Statutory Derivative Action

Ang Thiam Swee v Low Hian Chor [2013] SGCA 11 – commencement of statutory derivative action – good faith requirement.[1]

 

The Court of Appeal clarified and articulated several principles on the good faith requirement (under section 216A(3)(b) of the Companies Act) in respect of commencing statutory derivative actions under section 216A of the Companies Act.

 

The Court of Appeal clarified that while the motivations of the applicant should be assessed, it is not the motivations per se that constitute bad faith; instead, bad faith will only be established where the applicant’s motivations amounted to a personal purpose (where the applicant’s judgment becomes “clouded by purely personal considerations”) which indicated that the company’s interest would not be served: at [12]-[17].

 

There is no presumption that every party with a reasonable and legitimate claim was acting in good faith. Instead, the onus was upon the applicant to demonstrate that he was or may be genuinely aggrieved. (At [18]-[23]). (This overturned existing Singapore case law which stated that there was a presumption.)

 

Drawing from Canadian and Australian jurisprudence, the Court of Appeal applied a test for good faith which looked at (at [24]-[31]):

• whether the applicant had an honest belief in the merits of the proposed derivative action; and
• whether the applicant’s collateral purpose is sufficiently consistent with the purpose of doing justice to a company such that he is not abusing the statute, amounting to abuse of process, or abusing the company as a vehicle for his own personal interests.

 

Further, considerations of legal merit should not be factored into the assessment of good faith and may more appropriately be dealt with under s 216A(3)(c), which looked to the prima facie interests of the company (at [58]).

[1] See also Supreme Court Note- Ang Thiam Swee v Low Hian Chor [2013] SGCA 11 (s 216A of the Companies Act) Supreme Court Note, Supreme Court, Mar 2013 (1).