Introduction

This write up considers the very recent Federal Court decision in the case of Ong Leong Chiou & Anor V Keller (M) Sdn Bhd & Ors 2021 1 LNS 301 the Judgment of Nallini Pathmanathan FCJ.

Brief Facts

• The facts are indeed convoluted and can be summarized as follows for ease of understanding. There is also a chart attached for better grasp of the facts.
• The subject project in question in this matter was a project known as Melawati Mall Project consisting of 10 storey shopping Mall and business complex.
• This was a project by Sime Darby Capital Malls Asia (‘Sime Darby’).
• Sime Darby appointed Bina Puri Holding Berhad (‘Bina Puri’) (the 2nd Respondent/4th Defendant) as Main Contractor.
• Bina Puri then subcontracted the works to Perfect Solution Sdn Bhd the 2nd Appellant/3rd Defendant.
• Ong Leong Chiou the 1st Appellant/1st Defendant was the ‘mastermind’ or ‘puppeteer’ behind the 2nd Appellant/3rd Defendant, Perfect Solution Sdn Bhd (‘Perfect Solution’).
• Perfect Solution then subcontracted the works to PS Bina Sdn Bhd (‘PS Bina’) the 3rd Respondent/2nd Defendant.
• It is to be noted that there were Common Directors in Perfect Solution and PS Bina namely Tony Ong 50% shareholder of Perfect Solution and Tony Ong 40% shareholder in PS Bina. The other Director was Liew Pok Boon having 50% shares in Perfect Solution and 30% shares in PS Bina.
• PS Bina then subcontracted the works to the 1st Respondent /Plaintiff, Keller (M) Sdn Bhd that actually carried out the works and entered into contracts for the earthworks.

Court Held

1. That the veil of incorporation is not entirely inviolable. One recognized exception is where the legal entity of a corporate body is utilized for fraudulent, dishonest or unlawful purposes.
2. That the person perpetrating such abuse cannot hide behind the separate corporate personality.
3. That the Courts will ‘break’ the shell of incorporation, by utilising the doctrine of the “lifting or piercing of the corporate veil”.
4. That the operation of Perfect Solution and PS Bina interchangeably as one single unit operated by Tony Ong supported the conclusion that he was the Alter Ego of these companies.
5. It supported the finding that Tony Ong utilised the corporate entities, particularly PS Bina to defraud and evade liabilities/debt due to the 1st Respondent/Plaintiff vide their corporate personalities.
6. PS Bina was created as a “mere façade” and “sham’ by Tony Ong to shield Perfect Solution from paying out and to defraud the 1st Respondent/Plaintiff.
7. This then was the one Single Economic Unit Test to justify the lifting of the Corporate Veil.

Conclusion

The Single Economic unit test is indeed interesting for lifting the corporate veil of companies within a group. The basis is understandable as although the said companies are separate and distinct entities in law, they in fact constitute a single unit for economic purposes. Liabilities should therefore be attached to the whole group so as to reach a single economic goal. The Federal Court decision in Ong Leong Chiou & Anor V Keller echoed was decided earlier by our Federal Court in the case of Ahmad Zahri Mirza Abdul Hamid v AIMS Cyberjaya [2020] 6 CLJ 557, where the Court endorsed group enterprise as a valid ground under general law to pierce the corporate veil. The sentiments as expressed by the Federal Court succinctly captured this group enterprise argument where it was held as follows:-

“A court may lift/pierce the corporate veil where the relationship between companies in the same group is so intertwined that they should be treated as a single entity to reflect the economic and commercial realities of the situation. An argument of “group enterprise” is that in certain circumstances a corporate group is operating in such a manner as to make each individual entity indistinguishable, and therefore it is proper to lift/ pierce the corporate veil to treat the parent company as liable for the acts of the subsidiary.

Lifting/piercing the corporate veil is one way to ensure that a corporate group, which seeks the advantages of limited liability, must also accept the corresponding responsibilities.”

In the Court of Appeal decision of Double Acres Sdn Bhd v Tiarasetia Sdn Bhd [2000] 7 CLJ 550 Abdul Malik Ishak J (as he was then was latter Court of Appeal Judge) had this to say:-

“Malaysian courts have been very magnanimous in lifting the veil in so far as a group enterprise is concerned unlike the Australian court in Pioneer Concrete Services Ltd v. Yelnah Pty Ltd [1986] 11 ACLR 108 a decision of the Supreme Court of New South Wales, and also unlike the New Zealand court in the case of Re Securitibank Ltd (No 2) [1978] 2 NZLR 136, 158-159.”

The Singapore Court in the case of Manuchar Steel Hong Kong Limited V Star Pacific Line Pte Ltd [2014] SGHC]181also rejected the applicability of the ‘single economic entity’ concept as it goes further than piercing the corporate veil. The Court held that while the movement of liability under the piercing of the corporate veil was unidirectional ie in the direction of the ultimate controller, usually the parent company, the movement of liability under the concept of single economic entity is multidirectional, meaning that all the members of the group will share liability.