1. Passing off claim against a company and its director — allegations of misrepresentation and piercing the corporate veil. (Para 4 , 5 )
Back
Next 
2021 MarsdenLR 1058
HIGH COURT (KUALA LUMPUR)
MOHD RADZI HARUN, J
Duthaco Sdn Bhd & Anor – Plaintiff
Versus
South Advance Chemical Sdn Bhd & Anor – Defendant
SUIT NO WA 221P-69-11 OF 2019
Important Points
The power to strike out pleadings under Order 18 rule 19 of the Rules of Court 2012 is a drastic measure to be exercised sparingly. Issues regarding piercing the corporate veil are triable and not suitable for summary disposal if the claim is sustainable.
Subject
Civil Law - Striking Out of Pleadings
Act Referred
Headnote
(A) Rules of Court 2012 - Order 18 rule 19(1) - Power to strike out pleadings - Drastic power to be exercised sparingly and only in exceptional cases where the claim is plain and obviously unsustainable (Paras 11, 12, 13). The court should not conduct a minute examination of documents and facts in a summary process to ascertain if a cause of action exists (Para 15).
(B) Companies Act 2016 - Section 20 - Separate legal entity - Piercing the corporate veil - General principle that a company is a separate legal entity from its shareholders - Veil may be lifted in special circumstances such as agency, fraud, sham, facade, group enterprise, or unfairness/injustice (Paras 6, 7, 8).
Facts of the case:
Plaintiffs initiated an action for passing off against a company and one of its directors. The director applied to strike out the claim against him, contending that the company is a separate legal entity and that the plaintiffs had not established the special circumstances necessary to pierce the corporate veil to attribute liability to him personally.
Findings of Court:
The court found that the cause of action against the director was not scandalous, frivolous, or vexatious, nor was it an abuse of the court process. The claims were found to be sustainable and the issues raised were not appropriate to be decided summarily (Para 19).
Issues: Whether the claim against a director of a company should be struck out under Order 18 rule 19 of the Rules of Court 2012 based on the principle of separate legal entity.
Ratio Decidendi: The power to strike out a pleading is a drastic measure and should only be used when a claim is obviously unsustainable on its face. Where there are triable issues, such as whether the corporate veil should be pierced because a director is the directing mind or alter ego of the company, the matter cannot be decided summarily and must proceed to trial.
Result: Application dismissed with costs.
(B) Companies Act 2016 - Section 20 - Separate legal entity - Piercing the corporate veil - General principle that a company is a separate legal entity from its shareholders - Veil may be lifted in special circumstances such as agency, fraud, sham, facade, group enterprise, or unfairness/injustice (Paras 6, 7, 8).
Facts of the case:
Plaintiffs initiated an action for passing off against a company and one of its directors. The director applied to strike out the claim against him, contending that the company is a separate legal entity and that the plaintiffs had not established the special circumstances necessary to pierce the corporate veil to attribute liability to him personally.
Findings of Court:
The court found that the cause of action against the director was not scandalous, frivolous, or vexatious, nor was it an abuse of the court process. The claims were found to be sustainable and the issues raised were not appropriate to be decided summarily (Para 19).
Issues: Whether the claim against a director of a company should be struck out under Order 18 rule 19 of the Rules of Court 2012 based on the principle of separate legal entity.
Ratio Decidendi: The power to strike out a pleading is a drastic measure and should only be used when a claim is obviously unsustainable on its face. Where there are triable issues, such as whether the corporate veil should be pierced because a director is the directing mind or alter ego of the company, the matter cannot be decided summarily and must proceed to trial.
Result: Application dismissed with costs.
Legal Category Hierarchy
Advocates:
Chung Chee Yien (CY Chung & Assoc) for the plaintiffs.
Lewis Lim (Boo Min Lee with him) (Lewis Lim & Min Lee) for the defendants.
Chung Chee Yien (CY Chung & Assoc) for the plaintiffs.
Lewis Lim (Boo Min Lee with him) (Lewis Lim & Min Lee) for the defendants.
Table of Contents
2. Whether a director should be excluded from liability based on the separate legal entity principle unless special circumstances justify piercing the corporate veil. (Para 6 , 9 , 10 )
3. Striking out under Order 18 rule 19 is a drastic power to be exercised sparingly, only when a claim is plain and obviously unsustainable. (Para 11 , 12 , 13 , 14 , 15 , 17 , 19 )
4. A pleading should not be struck out under Order 18 rule 19 unless the claim is obviously unsustainable on its face without minute examination of facts. (Para 12 , 13 , 15 )
5. Application to strike out the claim against the director dismissed with costs. (Para 20 )
6. When should the court exercise its power to strike out a pleading under Order 18 rule 19?
The power is drastic and should be exercised sparingly and with utmost caution, only in plain and obvious cases where the claim is obviously unsustainable on its face. (Para 11 , 12 , 13 , 17 )
7. What is the standard of scrutiny applied by the court in a summary striking-out application?
The court must not conduct a minute examination of documents and facts to ascertain if a cause of action exists; it must determine if the claim is obviously unsustainable. (Para 12 , 14 , 15 )
8. Under what circumstances can the corporate veil of a company be pierced to attribute liability to a director?
The corporate veil may be lifted in special circumstances, such as where the company is a mere facade concealing true facts or where there is actual or equitable fraud. (Para 6 , 7 , 8 )
Mohd Radzi Harun J:
GROUNDS OF JUDGMENT
INTRODUCTION
[1]The Plaintiffs filed an application for a summary judgement under O. 14 of the Rules of Court 2012 (“ROC”) to be entered against the Defendants. The 2nd Defendant filed an application under O. 18 r. 19(1)(b)(c) and/or (d) to strike out the Plaintiffs’ Amended Writ and Amended Statement of Claim against him.
[2]I had disallowed both applications with costs.
[3]The Plaintiffs did not appeal against my dismissal of their application. The 2nd Defendant filed this appeal having aggrieved by this Court’s decision disallowing his application. The following are my grounds in coming to such decision .
BACKGROUND
[4]The Plaintiffs’ action against the Defendants are for the alleged act of passing off by the 1st Defendant of the 1st Defendant’s products bearing the trade marks “S.A.C Cemfix”, a cement material, and “S.A.C. Bond-8”, a bonding agent, as the Plaintiffs’ products with the trade marks “Cemfix 777” and “Bond It”, also cement material and bonding agent respectively. The 2nd Defendant is one of the 1st Defendant’s directors. The 1st Defendant was appointed as the Plaintiffs’ agent in 2017 which had ended in 2019.
[5]The Plaintiffs’ claims against the 2nd Defendant in the main were -
(i)that the 2nd Defendant was one of the Plaintiffs’ agents or distributors of Cemfix 777 and Bond It;
(ii)that the 2nd Defendant on his own and/or his representative or agent had passed off and misrepresented the 1st Defendant’s S.A.C. Cemfix and S.A.C Bond-8 products as the Plaintiffs’ Cemfix 777 and Bond It products which had been repackaged and rebranded;
(iii)that the 2nd Defendant is the alter ego and directing mind of the 1st Defendant, being the majority shareholder of the 1st Defendant, aside from an arrangement between the parties pertaining to a loan of RM300,000.00 by the 2nd Defendant to the 1st Plaintiff resulting in an investment by the 1st Defendant into the 1st Plaintiff as per the terms of a Friendly Loan Agreement dated 15/5/2018.
[6]The 2nd Defendant’s main argument to challenge the Plaintiffs’ suit against him is pivoted on his contention that he should be entirely left out of the dispute between the Plaintiffs and the 1st Defendant in adherence to the well-established principle of a company being a separate legal entity, pursuant to s. 20Companies Act 2016Salomon v A. Salomon & Co Ltd Abdul Aziz bin Atan & Ors v Laang Rengo Malay Estate Sdn Bhd Public Bank v New Ace Digital Pront Sdn Bhd & Anor nd Defendant in its Suit against the 1st Defendant could only be sustained when this Court allows the piercing or lifting of the corporate veil of the 1st Defendant having satisfied that the Plaintiffs had fulfilled the special circumstances. (See Solid Investment Ltd v Alcatei-Lucent (M) Sdn Bhd (previously known as Alcatel Network .Systems (M) Sdn Bhd ).
[7]The learned counsel for the Defendants further cited Ahmad Zahri bin Mirza Abdul Hamid v Aims Cyberjaya Sdn Bhd
”[13] Put simply, “lifting/piercing the corporate veil” means disregarding the dichotomy between a company and a natural person behind it and attributing liability to that person where he has misused or abused the principle of corporate personality. Since the decision of the House of Lords in Salomon v. Salomon & Co , which affirmed the legal principle that, upon incorporation, a company is generally considered to be a new legal entity separate from its shareholders, the courts in Malaysia, England and other Commonwealth jurisdictions have found exceptions to the general principle stated in Salomon (supra) and have lifted/pierced the corporate veil to reveal those who controlled the company .
[14] The application of the doctrine of veil lifting/piercing the corporate veil is far from clear from case law. Professor Farrar has described the Commonwealth authority on piercing the corporate veil as “incoherent and unprincipled” (See: J Farrar, ‘Fraud, Fairness and Piercing the Corporate Veil ‘(1990) 16 Canadian Business Law Journal
