Company Law

Citation(2005) 6 SAL Ann Rev 128
Date01 December 2005
Publication Date01 December 2005
AuthorTAN Cheng Han SC LLB (National University of Singapore), LLM (Cambridge); Advocate and Solicitor (Singapore); Professor and Dean, Faculty of Law, National University of Singapore.
Lifting the corporate veil

7.1 New Line Productions, Inc v Aglow Video Pte Ltd [2005] 3 SLR 660 (‘New Line Productions, Inc’) was a consolidated hearing of several suits involving copyright infringement of three cinematograph films had been consolidated. There were a number of defendants, including Aglow Video Pte Ltd (‘Aglow’), which was a company engaged in the business of importing and distributing wholesale cinematograph films in various video formats, including video home system (‘VHS’), digital versatile disc (‘DVD’) and video compact disc (‘VCD’). Other defendants included TS Laser Pte Ltd (‘TS Laser’) and TS Entertainment Pte Ltd (‘TS Entertainment’), both of whom carried on business in conjunction with a number of other companies and business entities under the name and style ‘TS Group’, and were involved in the retail of films in video format. The TS Group was one of the largest video retail chains in Singapore. Other companies within the TS Group, as well as directors and officers of such companies, were also made defendants.

7.2 In June 2003, Aglow imported 3,000 copies of a film titled ‘Lord of the Rings — The Two Towers’ (‘TTT’) in VCD format into Singapore, and distributed them through the TS Group outlets. The plaintiffs then commenced Suit No 718 of 2003, and obtained an interim injunction on 11 July 2003 prohibiting the defendants in that action from dealing with the infringing TTT VCDs and ordering delivery-up of the remaining ones. The defendants eventually delivered up six copies of TTT. However, the TS Group outlets, save for the one at Suntec City, which was operated by TS Entertainment, continued to sell TTT. It was only then that the plaintiffs realised that each outlet was operated by a different company, with all the companies allegedly independent from one another, and maintaining their own accounts. TS Entertainment operated only the Suntec City outlet.

7.3 The plaintiffs then issued letters of demand to all the companies in the TS Group. However, these companies refused to abide by the terms of the injunction obtained earlier by the plaintiffs. Instead, they proceeded to obtain further supplies of another 7,000 TTT VCDs through Speedy Video

Distributors Pte Ltd (‘Speedy Video’). Accordingly, the plaintiffs commenced action against these companies as well, in Suit No 843 of 2003. Around that time, Suit No 836 of 2003 was also commenced against Aglow and its officers in respect of two other films, and an injunction was obtained against them pursuant to that action.

7.4 The three actions mentioned above were consolidated and tried together, with the plaintiffs seeking an injunction and damages, or in the alternative, an account of profits for infringement of copyright in the three films in issue. They also sought to lift the corporate veil in order to make the directors and officers of the companies involved personally liable for the infringement.

7.5 Tay Yong Kwang J found that Aglow and the TS Group had knowingly breached the plaintiffs” copyright. Accordingly, their defence, which was based upon their being innocent retailers dealing with what they believed to be genuine parallel imports, failed.

7.6 His Honour went on to hold that, far from being a loosely-knit group, the companies in the TS Group were really little pieces of mosaic forming a complete mural, glued together by the four directing minds behind the group, who were the common directors, officers and shareholders of the companies within the group. The business cards of these four persons intimated that TS Laser was the parent, or nerve centre, and that all the listed outlets were merely its offspring. In two newspaper articles, one of the four individuals constituting the directing minds, one Joseph Toh (‘Toh’), was described as the group marketing manager for the TS Group. In his affidavit of evidence-in-chief, he described himself as a sales manager, without specifying the company which employed him. The group also had a privilege card scheme applicable to all the outlets. All the outlets bore the initials ‘TS’, a trademark owned by TS Video Centre Pte Ltd. The plastic carrier bag used by them listed the chain of outlets. The companies in the group also shared many common directors and shareholders, and took instructions from one Clement Lau (‘Lau’), who appeared to be the beneficial owner of practically all of the companies. The headquarters of the group was in Lam Leong Building in Geylang Lorong 17, which also served as the warehouse, and was owned by several of the companies in the group.

7.7 In the circumstances, Tay J felt (see [99]) that it would be entirely just to lift the corporate veil, and regard the companies for what they all really were, ie, the business vehicles of Lau and his family. On this footing, the court”s findings should therefore apply to all the companies in the group.

Since the VCDs of TTT were infringing products, the entire TS Group was liable for having dealt with the products.

7.8 His Honour also held that the four individuals who were the ‘directing minds’ were personally liable for the copyright infringements of the companies within the TS Group. He held, further, that one of the directors of Aglow was personally liable for Aglow”s infringing acts. While Tay J accepted the general rule that officers of a company were not liable for the tortious acts committed by the company, he held that an exception arose where directors ordered an act by the company which amounted to a tort by the company. In such cases, these officers could be liable as joint tortfeasors, on the basis that they had ‘procured or directed’ the wrong to be done. His Honour found that this was indeed the case for the four directing minds of the TS Group, as well as for one of the directors of Aglow.

7.9 New Line Productions, Inc illustrates very nicely how the courts may be more willing to lift the corporate veil where corporate vehicles have been used for dishonest purposes. It has been argued elsewhere by this author that at the heart of the cases where the corporate veil has been lifted, the courts have felt that the corporate form has been abused to further an improper purpose, and not for a bona fide commercial transaction: see Tan Cheng Han, ‘Piercing the Separate Personality of the Company: A Matter of Policy?’[1999] Sing JLS 531. Certainly, based on the findings of Tay J, there can be little doubt that using corporate vehicles to infringe copyrights belonging to others is an abuse of the privilege of incorporation. Such cases provide the most obvious examples of when the general rule of separate personality may be departed from.

Corporate governance

7.10 In Jumabhoy Rafiq v Scotts Investments (Singapore) Pte Ltd[2005] 1 SLR 45 the issue of directors” remuneration fell to be decided. The plaintiff, who was a director of the defendant company at the material time, sought remuneration on a time-costs basis or, alternatively, on a quantum meruit basis.

7.11 The Court of Appeal dismissed the claim. First, it was held that when the defendant company passed resolutions to empower the plaintiff to carry out certain acts on behalf of the company, resolving to ‘indemnify’ him for all ‘costs and expenses’ that he incurred, this did not, as a matter of interpretation, constitute an agreement to remunerate him for what he subsequently did. The court felt fortified in this view by the fact that the

company”s articles would be inconsistent with the argument being advanced by the plaintiff. Under the articles, the rate of remuneration to be paid to a director, other than the managing director, had to be approved by the shareholders in general meeting. Alternatively, if a director was performing extra services to the company, the board could remunerate the director by the payment of a fixed sum. In the present case, the shareholders had not approved the rate of remuneration, nor was the plaintiff claiming a fixed sum.

7.12 The plaintiff”s claim for a quantum meruit payment also failed, on the grounds that such a payment to directors had to be in accordance with the articles. The court went on, however, to consider whether any equitable allowance should be allowed. Assuming that there was such a jurisdiction for the court to grant an equitable allowance to a company director, the Court of Appeal held that the plaintiff had not shown why such an allowance should be paid to him. His claim for time-costs would put him in a position of conflict with the interests of the company, as the slower he worked, the more he would benefit from the arrangement at the expense of the company. The Court of Appeal emphasised part of Lord Goff of Chieveley”s judgment in Guinness Plc v Saunders[1990] 2 AC 663 at 700—701, where Lord Goff had said, at 701, that any equitable allowance should only be provided in those cases ‘where it cannot...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT