Nordic International Ltd v Morten Innhaug

Tan Teck Ping Karen AR:

[2] The Plaintiff is a company whose shares are equally owned by the Defendant and Sinwa HK. The Defendant is also a director of the Plaintiff.

[3] Prior to the commencement of this action, Sinwa HK obtained leave from the Court of Appeal to bring an action in the name and on behalf of the Plaintiff against the Defendant for alleged breaches of directors’ duties arising from a time-charterparty of a vessel owned by the Plaintiff. Pursuant to the leave granted by the Court of Appeal, Sinwa HK commenced this current suit as a derivative action in the name of the Plaintiff against the Defendant.

[10] It seems to me that the Defendant counsel’s interpretation of Order 23 rule 1(3)(b) is not in line with the purpose behind this rule. The words of Order 23 rule 1(3)(b) support the interpretation that it is aimed at non-parties whose only interest in the proceedings is to make a commercial profit i.e. litigation funders. Sinwa HK is a shareholder who had obtained leave of the Court of Appeal to commence this derivative action. Sinwa HK clearly has an interest in the proceedings and is not a litigation funder. Therefore, Stage One is not satisfied.

[15] While Sinwa HK is one of the two shareholders of the Plaintiff and would, therefore, be one of beneficiaries of a successful outcome of the current proceedings, that is merely one factor to be taken into consideration. Chan Seng Onn J in Raffles Town Club Pte Ltd v Lim Eng Hock Peter and others (Tung Yu-Lien Margaret and others, third parties) [2011] 1 SLR 582 (“Raffles Town Club”) was of the view (at [26]) that the fact that the non-parties were the only shareholders of the company should not be the “overriding factor in consideration”. Otherwise, this would “drive a coach and horses through the doctrine of the separate liability of the company”. It was further held at [26]:

[25] The Defendant submits that as the current proceedings were commenced by Sinwa HK as a derivative action in the Plaintiff’s name and as Sinwa HK is the main party who has conduct of the current proceedings, the Plaintiff should be regarded as a nominal plaintiff.

[26] It is necessary to understand the nature of a derivative action to access the weight of the Defendant’s submissions. In Wallersteiner v Moir (No. 2) [1975] 2 WLR 389 (“Wallersteiner”), the English Court of Appeal at [396 C-D] adopted the observation of Professor Gower in Modern Company Law, 3 ed (1969), p587 as to what constitutes a derivative action:

[27] Walter Woon on Company Law (Sweet & Maxwell Asia, 2005) 3 ed at [9.65] confirms that in a derivative action, “[normally], the shareholder who instigates a suit should expect to pay for it, even though the fruits of the victory go to the company.” (emphasis added)

[28] It is clear that in while a derivative action is commenced by a shareholder who has conduct of the proceedings, it is the plaintiff company who would receive the benefits and fruits of the derivative action. Therefore, in the current derivative action, the Plaintiff is not suing for the benefit of some other person. It is the Plaintiff who will receive the benefits of a successful outcome of the proceedings. The Plaintiff is not a nominal plaintiff.