THIS year marks the 40th anniversary of the retirement of the most celebrated English judge of the 20th century, Lord Alfred Thompson “Tom” Denning.

Although his retirement in 1982 aged 83 was sparked by controversy over remarks he made about black jurors, it was his celebrated judgments, which were “models of simple English that ordinary people understood”, which won him the accolades unmatched in the history of the English judiciary.

Many lawyers regard him as the greatest judge of the century. Law students certainly love him. He died just six weeks after his 100th birthday on March 5, 1999.

More than 60 years ago in January 1956, Lord Denning sat as one of the Court of Appeal judges hearing an appeal on what seemed to be an ordinary landlord-tenant dispute.

The landlords owned a block of flats. They let flat No 13 to a Mr Beasley. He died and his widow remained in the flat as a statutory tenant. In October 1954, the landlords desired to increase the rent as allowed under the law.

They served three documents each dated October 9, 1954, one of which was a declaration: (i) that the conditions justifying an increase were fulfilled (that the premises were in good repair and reasonably fit for occupation), and (ii) that they had done work of repair so as to qualify them for an increase.

The tenant refused to pay. The landlords therefore commenced an action to recover it from her. The tenant alleged that the declaration was false and fraudulent in that the repairs for the benefit of the flats had never been carried out.

However, the trial judge held that since she did not challenge the declaration within the time stipulated by law, she could not challenge it. The tenant appealed.

Delivering the majority judgment, Denning said:

“Can the declaration be challenged on the ground that it was false and fraudulent? It can clearly be challenged in the criminal court…. The landlords argued before us that the declaration could not be challenged in the civil courts at all, even though it was false and fraudulent, and that the landlords can recover and keep the increased rent even though it was obtained by fraud.

“If this argument is correct, the landlords would profit greatly from their fraud… I cannot accede to this argument for a moment. No court in this land will allow a person to keep an advantage, which he has obtained by fraud. No judgment of a court, no order of a minister, can be allowed to stand if it has been obtained by fraud.”

Denning then said: “Fraud unravels everything. The court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved it vitiates judgments, contracts and all transactions whatsoever.”

It was one of his many judgments where he was prepared to use the law for its true purpose in the interests of fairness and justice. It was a judgment with a tremendous feel for the ordinary people, such as the widowed tenant.

His judgment has found renewed relevance of late, with the Federal Court having twice referred to it in recent years.

The most recent was in Ong Leong Chiou & Anor v Keller (M) Sdn Bhd & Ors, decided almost a year ago.

In that case, the facts can be summed up as follows: Company A, the main contractor, contracted out the substructural the works to Company B, which in turn subcontracted it out to Company C, which in turn subcontracted the works out to the plaintiff, which carried out the actual works.

The plaintiff claimed for non-payment of work done in the amount of RM7.46 million.

The trial High Court judge found fraud to have been perpetrated. That in itself warranted the allocation of liability to the perpetrators of the fraud, independently of the doctrine of piercing the corporate veil.

The finding of fraud involved Tony Ong as well as the two companies he controlled: Company B and Company C.

The two companies were ‘utilised’ by Ong to enable the sum due to the plaintiff to be evaded by Company B.

Company C was utilised as a ‘sham’ company interposed between Company B and the plaintiff, to ensure that the sum would not be paid to the plaintiff. It was deliberately engineered by Ong.

Company B was the recipient of the benefit gained from the fraud so perpetrated, because it received payment from Company A while being held insulated from the sum due and owing for the works done by the plaintiff.

It was in this context that the trial judge held that all three of them, Ong and the two companies, were jointly and severally liable.

The fraud could not have been perpetrated without any one of the three entities.

Ong and each of the companies were found liable even without the invocation of the doctrine of the piercing of the corporate veil.

It is the bedrock of company law that on incorporation of a company, the corporate entity is clothed with a separate and distinct personality.

It is an artificial legal person distinct from its members [Salomon v A Salomon & Co Ltd (1897)].

It is said that there is a ‘veil’ between the company and its members that separates them for purposes of liability, property, capacity, and in relation to acts done or the acquisition of rights.

The natural persons or individuals who are behind the company are ignored.

However, the veil is not entirely inviolable. One of the well-recognised and accepted exceptions to the principle of the separate personality of a company is where the legal entity of a corporate body is utilised for fraudulent, dishonest or unlawful purposes.

In such circumstances the person or persons perpetrating such abuse cannot hide behind the separate corporate personality.

The courts will ‘break’ the shell of incorporation, by utilising the doctrine of the ‘lifting or piercing of the corporate veil’. (See the judgment of Nallini FCJ below).

The Court of Appeal affirmed and endorsed the careful and thorough findings of the High Court judge in its entirety. So did the Federal Court.

In delivering the judgment of the apex court, Nallini FCJ said:

“As is the case in the United Kingdom, it is an accepted position in law in Malaysia that the court will lift the corporate veil if a company was set up for fraudulent purposes.

“The ‘fraud unravels all’ principle expounded in Lazarus v Beasley is applied. That is the primary and relevant principle that is applicable in the instant case.”

The principle that ‘fraud unravels all’ (fraus omnia corrumpit), though, cannot be limited to piercing the corporate veil.

The principle exists independently of the latter doctrine. Therefore, the court may unravel transactions by reason of fraud independently of the doctrine of piercing the corporate.

In the words of Nallini FCJ:

“[T]he finding of fraud in itself warrants the corporate personalities of the companies being disregarded. In other words, liability was found against Tony Ong and each of the companies by reason of the fraud alone, without the invocation of the doctrine of the piercing of the corporate veil.”

As Denning famously said: “Fraud unravels everything.” – January 31, 2022.

* Hafiz Hassan reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.