Malaysia – Lifting The Corporate Veil To Expunge A Registered Trademark.

 

Introduction

 

The Trade Marks Act 1976 (“TMA 1976”) allows for any person to apply to the Registrar of Trade Marks for the registration of a trade mark, provided the person is the proprietor of the trade mark. Specifically, section 25(1) provides for as follows¹:

 

“Any person claiming to be the proprietor of a trade mark used or proposed to be used by him may make application to the Registrar for the registration of that mark in the Register in the prescribed manner.”

Section 14(1) provides that a trade mark shall not be registered by the Registrar under certain circumstances including²:

 

“(d) if it is identical with or so nearly resembles a mark which is well-known in Malaysia for the same goods or services of another proprietor.”

 

Additionally, section 45(1)(c) provides for the Court to make an order seeking rectification of an entry into the Register in the case of fraud in the registration of a trade mark³.

 

In proceedings to expunge a trade mark, will the courts go to the extent of lifting the corporate veil when presented with evidence of fraud?

 

The background facts

 

The recently published grounds of judgment of the High Court case of Jyothy Laboratories Ltd v Puaneswaran a/l Renganathan⁴ considered, inter alia, the issue of whether the proprietor of the registered trade mark in question had in effect made a false claim to ownership of the trade mark in the application for registration. The parties to the proceedings are as follows:

 

1. The plaintiff, Jyothy Laboratories Ltd (“Jyothy”), was a company incorporated in India and was in the business of manufacturing and distributing, amongst others, toothpaste.
2. The first defendant, Puaneswaran a/l Renganathan (“Puaneswaran”), was a sole proprietor in the business of trading in a variety of fast-moving consumer goods.
3. The second defendant, Bumitulin Sdn Bhd (“Bumitulin”), was a company incorporated in Malaysia and traded in herbal and healthcare products within the country.
4. The third defendant, Rajoo (“Rajoo”), was a Malaysian individual who was a former director of Bumitulin and shareholder in Perusahaan Bumi Tulin Sdn Bhd (“PB”). It was also revealed that Rajoo’s son, Anantha Krishna a/l Thanga Rajoo (“Anantha”), was a fellow shareholder and co-director in Bumitulin and was a director in PB.

 

Jyothy and PB entered into a third agreement in 2008 where Jyothy authorised PB to distribute another type of toothpaste in Malaysia (“Neem”).

 

In 2014, Bumitulin successfully applied for the registration of a trade mark (“Dr Neem”) in Malaysia. Puaneswaran subsequently manufactured and marketed the product known as Dr Neem toothpaste.

 

In 2015, Jyothy terminated the 2008 agreement and subsequently initiated legal proceedings against Puaneswaran, Bumitulin and Rajoo respectively to determine, amongst others, if Bumitulin had lawfully registered the Dr Neem trade mark.

 

Prior use and common law proprietorship

 

The Court found Jyothy to be the common law proprietor of the Neem and Neem Active trade marks in Malaysia, as evidence demonstrated that there was usage of the respective marks by Jyothy through the distribution of its Neem toothpaste product in Malaysia since 2001.

 

In so ruling, the Court determined that the mere act of importing or distributing products containing a mark did not confer upon Rajoo common law proprietorship to the mark.

 

Registration by fraud?

 

Having determined Jyothy to be common law proprietor of the Neem and Neem Active trade marks, the Court moved on to consider if Bumitulin had fraudulently registered its Dr Neem trade mark in light of the background of Rajoo, a former director in Bumitulin, and Ananth, who was a shareholder and director in Bumitulin and a director in PB as well.

 

In Hai-O Enterprise Bhd v Nguang Chan⁵, the Court held that the act of making a claim to proprietorship with knowledge of the prior rights of another amounts to fraud.

 

The question to be determined by the Court in the present case was whether Bumitulin had knowledge that Jyothy was the first user of the Neem and Neem Active trade marks in Malaysia. If Bumitulin had knowledge prior to registering its Dr Neem trade mark, then Bumitulin would have fraudulently registered its trade mark.

 

Lifting the corporate veil

 

In Giga Engineering & Construction Sdn Bhd v Yip Chee Seng & Sons Sdn Bhd⁶, the Federal Court held that, inter alia, “there must be evidence either of actual fraud or some conduct amounting to fraud in equity to justify the lifting of corporate veil“.

 

It is also settled law that the courts are not to disregard the corporate veil merely on the basis that it is in the interests of justice to do so⁷.

 

In the present case, the Court also cited the recent case of Chanel v Melwani2 International⁸, in which the High Court, relying on a number of Federal Court judgments which included the Giga case above, held that to pierce or lift a corporate veil, two conditions are required to be fulfilled cumulatively, namely:

 

1. The piercing or lifting of a corporate veil is in the interest of justice; and
2. There exists special circumstances to pierce or lift the corporate veil.

 

The Court in the present case noted that it was not disputed that Rajoo’s son (Anantha) was the 50% shareholder and co-director in Bumitulin, and the fact that Rajoo was a former director of Bumitulin.

 

The Court adduced evidence from these two facts to determine that Rajoo was responsible for causing Bumitulin to commit fraud by registering the Dr Neem trade mark. This was because Rajoo possessed prior knowledge of Jyothy being the first user in Malaysia and common law proprietor of the Neem and Neem Active trade marks.

 

Hence the Court took the view that there was presence of special circumstances as well as it was in the interest of justice to lift the corporate veil. By so lifting the corporate veil of Bumitulin, the Court imputed Rajoo’s knowledge on the first user and Jyothy’s common law proprietorship of the Neem Active trademark to Bumitulin. Imputing Rajoo’s knowledge to Bumitulin, the Court held that Bumitulin had breached section 45 by fraudulently registering the Dr Neem trade mark with the Registrar as Bumitulin was aware of Jyothy’s IP rights.

 

Conclusion

 

The decision of the High Court indicates that where special circumstances exist, such as when there is evidence that fraud has been committed or evidence of some conduct amounting to fraud, as well as where the interest of justice so requires, the courts are willing to lift the corporate veil in trade mark infringement cases.

 

While the decision of this case is not novel per se, it is, however, an indicator that the courts are willing, subject to conditions met⁹, to lift the corporate veil in trade mark infringement cases where, despite having knowledge of another party’s prior use and common law proprietorship to the mark, defendants proceed to register the mark.

 

 

For further information, please contact:

 
Pravind Chandra, Shearn Delamore & Co​

pravind.chandra@shearndelamore.com