Back
2021 MarsdenLR 1532
HIGH COURT MALAYA JOHOR BAHRU
CHOONG YOON CHOI & ANOR – Appellant
Versus
CHONG LEONG SHEN & ORS – Respondent
[Civil Appeal No: JA-12ANCvC-33-10/2020]
Lifting the corporate veil requires clear allegations of fraud; striking out claims must allow for trial where sufficient facts are pleaded.
Headnote:(A) Rules of 2012 – Order 18 Rule 19(1)a-d – Striking out pleadings – Plaintiffs alleged breach of contract against the Defendants regarding seafood sale – Defendants’ conduct deemed unconscionable justifying lifting the corporate veil – Court emphasized that actions taken to strike out must be clear and should allow for trial where fraud or misconduct is alleged (Paras 6-20).
(B) Striking out applications – Must not determine issues that require examination or proof at trial (Para 19).
(C) Fraud pleadings – General allegations aren’t enough; specific facts must be provided (Para 15-17).
Facts of the case: Plaintiffs sued for breach of contract against a company and its directors due to asset disposal to evade contractual obligations.
Findings of Court: The learned SCJ failed to recognize sufficient pleaded facts amounting to justifiable claims requiring trial.
Issues: Whether the Plaintiffs pleaded enough facts to lift the corporate veil and whether fraud was adequately pleaded.
Ratio Decidendi: The Court ruled that lifting the veil requires clear allegations of fraud or unconscionable conduct, and insufficient grounds were provided to strike out claims that warranted a trial.
Result: Appeal allowed.
JUDGMENT
Introduction
[1] This is an appeal ("this Appeal") against the decision of the learned Sessions Court Judge ("SCJ") in allowing an application by the Respondents to strike out the pleadings of the Appellants. For ease of reference, the Appellants and Respondents will be referred to respectively as the Plaintiffs and Second to Fourth Defendants.
The Factual Background
[2] The Plaintiffs filed an action against the Defendants in the Sessions Court for breach of contract for sale of seafood by the Plaintiffs to the First Defendant Company. The Second, Third and Fourth Defendants are directors of the First Defendant.
[3] The Plaintiffs' claim against the Second to Fourth Defendants were premised on the averment that the Second to Fourth Defendants are the controlling mind of the First Defendant, and had deliberately disposed of the assets of the First Defendant to evade the existing contractual liability of the First Defendant owed to the Plaintiffs.
[4] The Plaintiff submitted that the conduct of the Second to Fourth Defendants was unconscionable which warranted the veil of incorporation to be lifted.
[5] The Second to Fourth Defendants filed an application to strike out the Plaintiff's claim, on the basis that there was no equitable fraud on their part which warranted the lifting of the veil of incorporation. The striking out application was allowed by the learned SCJ. As a result thereof, the Plaintiff appealed. The Appeal was allowed for the following reasons.
The Applicable Law
[6] In any striking out application, the starting point of reference is O 18 r 19(1) of the Rules of 2012 ("Rules of "), which reads:
Order 18 - Pleadings
Rule 19. Striking out pleadings and endorsements
(1) The Court may at any stage of the proceedings order to be struck out or amended any pleading or the endorsement, of any writ in the action, or anything in any pleading or in the endorsement, on the ground that-
(a) it discloses no reasonable cause of action or defence, as the case may be;
(b) it is scandalous, frivolous or vexatious:
(c) it may prejudice, embarrass or delay the fair trial of the action; or
(d) it is otherwise an abuse of the process of the Court, and may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be.
[7] The law on striking out has been encapsulated in the Supreme Court case of Bandar Builder Sdn Bhd & Ors v. United Malayan Banking Corporation Bhd, , and distilled by Mohamed Dzaiddin SCJ (as he then was) in the following words:
The principles upon which the Court acts in exercising its power under any of the four limbs of O 18 r 19(1) Rules of the High are well settled. It is only in plain and obvious cases that recourse should be had to the summary process under this rule (per Lindley M.R. in Hubbuck v. Wilkinson [1899] 1 QB 86, p 91), and this summary procedure can only be adopted when it can be clearly seen that a claim or answer is on the face of it "obviously unsustainable" (Attorney-General of Duchy of Lancaster v. L & NW Ry Co [1892] 3 Ch 274, CA). It cannot be exercised by a minute examination of the documents and facts of the case, in order to see whether the party has a cause of action or a defence (Wenlock v. Moloney [1965] 1 WLR 1238; [1965] 2 All ER 871, CA.). The authorities further show that if there is a point of law which requires serious discussion, an objection should be taken on the pleadings and the point set down for argument under O 33 r 3 (which is in pari materia with our O 33 r 2 Rules of the High ) (Hubbuck v. Wilkinson) (supra). The Court must be satisfied that there is no reasonable cause of action or that the claims are frivolous or vexatious or that the defences raised are not arguable.
[Emphasis Added]
[8] I found instructive also the Federal Court case of Seruan Gemilang Makmur Sdn Bhd v. Kerajaan Negeri Pahang Darul Makmur & Anor, [2016] 3 MLJ 1, where it was stated by Ramly Ali FCJ:
The principles for striking out pleadings purs
