During the famous defamation suit against SPD Chief Chee Soon Juan, his lawyer argued that a political party cannot sue or be sued for defamation.

Although the court did not agree with him, this reminds me of Foss v Harbottle‘s case, which I think is very important for business owners to understand.

The facts of this case are that two minority shareholders initiated legal proceedings against, amongst others, the directors of the company. They claimed that the directors had missapplied the company’s assets. The court dismissed the claim and held that when a company is wronged by its directors, only the company has standing to sue.

That means since the right to legal action belongs to the company, an individual shareholder has no right to commence action.

However, in exceptional situations, the law may allow an individual shareholder or some other person to commence an action in the name of the company. Such an action is known as a “derivative action” under Sections 216A and 216B of the Companies Act. The court may in its discretion allow a shareholder to commence the derivative action if:

• He has given 14 days’ notice to the director of his intention to apply
• He is acting in good faith, and
• It is prima facie in the interests of the company that the derivative action be brought.