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14 November 2022

Actions in Conspiracy: Part II – Intra-Corporate Conspiracy

This article is Part II of the “Actions in Conspiracy” series which will explore the doctrine of intra-corporate conspiracy. 

It is common knowledge that a company has its own separate legal entity, separate from that of its directors and shareholders. This is an elementary rule of corporate law that dates back more than a century to the seminal House of Lords case of Salomon v A Salomon & Co Ltd [1897] AC 22. Thus, in theory, it should be possible for an action for conspiracy, which requires a plurality of actors, to be mounted against both a company and its directors.

However, principles of company law also dictate that a company acts through agents, namely its directors. Therefore, it stands to reason that as the acts of a company’s directors are the acts of the company, a director and the company cannot be treated distinctly as they are one and the same. This has led to the conceptualisation of the doctrine of ‘intercorporate conspiracy’ where employees of a company are deemed incapable of conspiring amongst themselves or with the company. This doctrine finds its roots in jurisprudence from the United States.

The argument against a company being able to conspire with its directors is fortified when the doctrine of the corporate veil is considered. In most situations, allegations of fraud and conspiracy are taken collectively, where the corporate veil is sought to be pierced and a director is deemed to be the controlling mind of the company. In situations such as these, logically it would be counterintuitive to allege that a director is the controlling mind of the company whilst at the same time liability is sought to be imputed against the director and the company in a conspiracy claim where they are treated as separate entities. This concept was recognised by the Irish Supreme Court in Taylor v Smyth [1991] 1 IR 142. Simply put, the argument was that two legal persons (the company and the director), who effectively share one and the same mind cannot be said to conspire amongst themselves.

Opposing the Doctrine

In Malaysia, Singapore and to a large extent, the United Kingdom, the position is fairly settled. Based on the principle that a company has a separate legal personality from that of its directors and shareholders, a company can indeed be said to conspire with its own directors. This was affirmed by Mohd Nazlan Mohd Ghazali J (as his Lordship then was) in Yong Toi Mee & Anor v Malpac Holdings Bhd & Ors [2018] 5 CLJ 619 where it was held that there is “no legal impediment to a finding that a company can conspire with its own directors”. This position was recently affirmed by her Ladyship Liza Chan Sow Keng JC in the case of Tawfique Hasan Chowdhury v BWFW Medic Sdn Bhd & Ors [2022] MLJU 1246.

The controversy in this area of the law appears to be how does one reconcile the opposing notions described above. On the one hand, it is recognised that a director shares a controlling mind with the company, whilst on the other hand it is said that both the director and the company as separate legal entities, are capable of conspiring with one another. In legal jargon, one is said to be ‘blowing hot and cold’. 

Singapore caselaw is instructive in this regard. The High Court judgments of Nagase Singapore Pte Ltd v Ching Kai Huat and Others [2007] SGHC 169 and Lim Leong Huat v Chip Hup Hup Kee Construction Pte Ltd [2009] SGHC 2 advocate the principle that although a director is the directing mind of a company, for purposes of a conspiracy action, said director can be liable for conspiracy alongside the company which he controls.

The Decisions in Nagase & Lim Leong Huat

The Singaporean courts have broadly cited two reasons for imposing liability on a director in respect of an action for conspiracy involving both him and the company which he controls:-

i.                In the event only personal liability was imposed on the director and not the company, it would be invidious if “the assets of a limited company should not be liable to answer for conspiracy where its assets had been augmented as a result of the action alleged to constitute the conspiracy”; and

ii.               There is insufficient reason to justify why “the mere fact that one individual controls the company of limited liability, should give immunity from suit to both that company and that individual in the case of an established arrangement for the benefit of both company and individual to the detriment of others”.

A useful example provided in Taylor and cited in Nagase were instances where a director in two companies had used both companies to form an arrangement akin to one of conspiracy to his advantage but would in effect be immune from liability as a result of the doctrine of intracorporate conspiracy.

A logical approach to the issues posed above was taken by Andrew Ang J in Lim Leong Huat wherein the decision of Nagase was affirmed. Here, the Court was more concerned with the fundamental principle that a company, even if controlled solely by one director, was at its core a separate legal entity from said director. It was on this basis that the director and the company, notwithstanding that they were controlled by one and the same person, could enter into a contract of employment with one another.

Consolidating the Principles

The net effect of the various principles set out above is this. Whilst the doctrine of intracorporate conspiracy recognises that the acts of a company are personified through the acts of its employees such that they cannot conspire with one another, jurisprudence across the Commonwealth has acknowledged that situations will inevitably arise where it would be unfair to allow a director to evade liability by relying on the doctrine. Ultimately, effect is given to the cardinal rule that a company’s legal personality is separate from that of its directors and shareholders such that whilst they have may a common directing mind, there would still be a plurality of entities such that an action in conspiracy may be mounted.

 

This article is authored by Mavin Thillainathan (Partner) and Amitaesh Thevananthan (Pupil) of the Commercial Litigation Practice of Lavania & Balan Chambers. It contains general information only. The contents are not intended to constitute legal advice on any specific matter nor is it an expression of legal opinion and should not be relied upon as such.