CAPITAL CITY PROPERTY SDN. BHD. v 1. ) Teh Swee Neo 2. ) Lee Yong Hen

Case Significance

Confirms the reluctance of the courts to lift the corporate veil so as to make one company liable for a related company's obligations, holding that veil-piercing is directed at individuals and requires equitable and constructive fraud that was absent here.

This Court of Appeal decision addresses a novel question about lifting the corporate veil: whether a court may pierce the veil of one company and impose that company's liability on a second, related company. The dispute arose out of a shopping-mall development in which the developer company had built and sold commercial lots to purchasers, who then entered into tenancy agreements with a management company in the same corporate group. When disputes arose over the termination of the tenancy agreements and unpaid rent, the plaintiffs — the respondents on appeal — obtained judgment in the High Court that pierced the corporate veil of the management company (the first defendant) so as to impose its liability under the tenancy agreements on the developer company (the second defendant, the appellant). The Court of Appeal examined the principles governing veil-lifting, emphasising that the lifting of the corporate veil is ordinarily directed at imposing liability on the individuals behind a company rather than on another company, and that it requires conduct amounting to equitable and constructive fraud. Reviewing the facts and evidence, the Court held that they did not disclose the kind of fraud or wrongdoing necessary to justify piercing the veil of the first defendant so as to fix the second defendant with its liabilities. It also had regard to the relevant clause of the sale and purchase agreement, the group-company relationship, and the parol-evidence provisions in sections 91 and 92 of the Evidence Act 1950. Concluding that the High Court had erred, the Court allowed the appeal, set aside the judgment against the second defendant, and ordered the respondents to pay the second defendant costs here and below of RM30,000 subject to allocatur. The decision illustrates the reluctance of the courts to extend veil-piercing so as to make one company answerable for another's liabilities absent fraud.