By Geetha Kandiah

Chanel, Burberry, Louis Vuitton, and Gucci are names which are guaranteed to excite fashionistas everywhere. However, the case of Chanel v. Melwani2 International Sdn Bhd, Lachmandas Ishwarlal Melwani & Ang Chong Leng (heard together with 3 other matters),  clearly shows that if you mess with these big guns, you will pay dearly (literally), and trying to hide under the veil of a limited liability company might be a futile exercise!

The above-mentioned 4 parties (“Plaintiffs”) are proprietors of registered trademarks for various goods and services in Classes 3, 9, 14, 18, 24, 25 and 35. The 1st Defendant is a company which is not an authorized distributor or retailer of any of the Plaintiffs, but which sold products bearing the Plaintiffs’ trademarks (“Infringing Products”). The 2nd Defendant is an Indian national who is a director of the 1st Defendant, owning 78% of its shares, and the 3rd Defendant is also a director of the 1st Defendant who owns 17% of its shares.

The Plaintiffs sent representatives to purchase the Infringing Products on 4 occasions from 2012 to 2014, and consequently, the 1st Defendant’s premises were raided 4 times by officers of the Ministry of Domestic Trade, Co-operatives and Consumerism. The Plaintiffs then filed each filed suits against the 1st to 3rd Defendants for infringement of their registered trademarks and 4 further suits for summary judgements against all Defendants. The 1st and 2nd Defendant did not enter appearance in the suits, but the 3rd Defendant entered appearance and filed a defence. The High Court proceeded to grant judgements in default of defence against the 1st and 2nd Defendant for failing to enter an appearance and file a defence.

In this case, it was clear that the 1st Defendant had infringed the Plaintiffs’ registered trademarks under the Trade Marks Act 1976. However, the Plaintiffs submitted that the 3rd Defendant was liable for the 1st Defendant’s infringement for several reasons, including the fact that the 3rd Defendant was a director and shareholder of the 1st Defendant, had actively marketed and promoted the Infringing Products, had previously paid fines on behalf of the 1st Defendant and is the directing mind and will of the 1st Defendant. As such, one of the issues before the High Court was whether to pierce or lift the 1st Defendant’s corporate veil (a legal concept that a corporation is legally independent and distinct from the people who own or invest in it), and hold the 3rd Defendant personally liable for the 1st Defendant’s infringing acts.

In considering whether to lift or pierce the corporate veil the High Court stated that there is a difference between lifting the veil (which is to ascertain the true factual position without imposing personal liability on an individual) and piercing the veil (when a party seeks to impose personal liability on an individual connected to the company), and that lifting or piercing the veil should only be done in exceptional circumstances. The High Court went on to affirm that 2 conditions must be fulfilled in order to lift or pierce the corporate veil, i.e.:

(i) It is in the interests of justice (1st condition)

(ii) Either of the following special circumstances apply (2nd condition):

• Actual fraud or common law fraud had been committed,
• Equitable or constructive fraud had been committed,
• To prevent evasion of liability, or
• To prevent an abuse of corporate responsibility.

On the facts of the case, the 3rd Defendant had claimed to have resigned as a director of the 1st Defendant at the end of 2014. However, the Plaintiffs had adduced evidence that the 1st Defendant had previously pleaded guilty to criminal charges for offences under the Trade Descriptions Act 2011 and had been fined RM 318,000.00, and the file was personally paid for by the 3rd Defendant. In addition, the Plaintiffs had submitted evidence obtained in 2016 from the records of the Companies Commission of Malaysia which showed that the 3rd Defendant was still a director of the 1st Defendant. On top of that, the 3rd Defendant did not provide any documentary evidence to show his alleged resignation from the 1st Defendant.

Taking into account the above facts, the High Court held that the 1st condition was satisfied. The Court also held that the 2nd condition was satisfied in this case as there were 2 special circumstances to pierce the corporate veil, that being to prevent the 3rd Defendant from evading statutory liability towards the Plaintiffs for trademark infringement, and so that the Plaintiffs’ corporate personality is not abused by the 3rd Defendant. Accordingly, the High Court found the 3rd Defendant also personally liable for trademark infringement, and grant summary judgement against the 3rd Defendant.

[one-half-first]This case shows that the corporate veil is not absolute in nature, and where the interests of justice are threatened or if there exist special circumstances to validate such an act, the courts will lift or pierce the corporate veil and hold individuals personally accountable for their actions, including acts of trademark infringement.[/one-half-first]
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