In a landmark ruling Justice S Nantha Balan said the separate legal entity doctrine, which allows for lifting the corporate veil only in limited circumstances, cannot be disregarded in Industrial Court proceedings.
In its unanimous ruling, the Court of Appeal departed from its 2015 decision in Asnah Ahmad v Mahkamah Perusahaan & Others, which had permitted the Industrial Court to take a more flexible approach in applications to join and substitute parties.
Also on the panel hearing the appeal were Justices Lim Chong Fong and Noorin Badaruddin.
The case involved claims brought by the employees in the Industrial Court for reinstatement to their positions at Hub Shipping Sdn Bhd and EM Shipping Sdn Bhd, respectively, following what they alleged were unjust retrenchments.
While the case was ongoing, Hub Shipping was wound up and a liquidator appointed.
The employees then applied under Section 29(a) of the Industrial Relations Act 1967 to substitute the insolvent company with its parent, Hubline Berhad.
They also applied to join another company, Highline Shipping Sdn Bhd, which shares common directors and shareholders with the company in liquidation.
Section 29(a) reads: “The (Industrial) Court may, in any proceedings before it order that any party be joined, substituted or struck off.”
In January 2019, the Industrial Court allowed the employees’ joinder application. The High Court upheld the award two years later, giving rise to the present appeal.
In a written judgment delivered last week, Nantha Balan said the central issue was whether the Industrial Court could join another corporate entity to proceedings involving an insolvent company solely on the basis that they shared common directors and shareholders.
The judge also said the decision involved a weighing of the conflict between “the demands of fairness, equity and good conscience in employment disputes” and “the orthodox protection of the corporate veil”.
Nantha Balan observed that the wide scope of Section 29(a) has enabled the Industrial Court to extend its application in ways that conflicted with the fundamental company law principle that each company was a separate legal entity.
He noted that the High Court in dismissing the judicial review application had applied the principles enunciated by the Court of Appeal in Asnah’s case.
“The approach enjoined by the Court of Appeal in Asnah’s case invites judicial overreach, and enables the Industrial Court to circumvent the separate legal personality doctrine,” Nantha Balan’s 58-page judgment read.
However, the judge noted that Section 29(a) was by its purpose merely procedural, not substantive.
“It was never intended as a mechanism to collapse the walls of corporate separateness or to impose liabilities on third parties in the absence of a contractual or statutory basis.
“The law does not, nor should it in our view, allow courts to rewrite the legal identity of the employer ex post facto merely to ensure that an award does not become a paper judgment.
“To do so is to sacrifice legal principle at the altar of practical convenience,” the judgment read.
Nantha Balan rejected the ruling in Asnah’s case, saying it was inconsistent with a 2004 appeals court decision in the case of Co-operative Central Bank Ltd & Others v Rashid Cruz Abdullah & Others.
The correct position, he said, was that the entity to be added to the dispute must be among the persons or parties responsible for terminating the affected workman’s employment.
Lawyers Ryan Ng, Khong Mei Yan and Nathaniel Low appeared for Hubline, while Alex De Silva and Jessica Chew represented Highline Shipping.
Counsel Muhendaran Suppiah and Chong Wan Loo represented 21 of the workers, with the rest unrepresented.