Our Current Client’s Problem

X Company is a large well-established drug company which is the head of a large group of companies including Company A, a wholly-owned subsidiary which owns all the premises used by X Company in its business, and Company B, another wholly owned subsidiary which was set up specifically to carry out commercially risky ventures in the search for profitable new drugs. The Board of directors of X Company consists of seven members, but the managing director, H is the dominant force. The board generally agrees with his proposals and he has become clearly associated in the mind of the public with X Company.

Last year, the local authority governing the area where X Company carries on part of its business expropriated certain land under its statutory powers as part of a slum clearance program. This included land owner by Company A. The compensation offered under the scheme established by the expropriating statute provided for compensation to be paid to ‘the owner of the expropriated land according to the open market value of the land plus the assessed damages for any loss of profits suffered by the owner’. The compensation offered by the local authority to Company A has ignored the loss, amounting to RM150,000, suffered by X Company in having to relocate its operation elsewhere.

More recently, Company B undertook experiments to try to develop a drug to cure certain types of cancer. In a high profile advertising campaign, H made a personal appeal on behalf of Company B for volunteers for this experiment. The advertising campaign ran for several days on television and in national newspapers, and 100 volunteers died, others were permanently maimed. The experiment was not properly researched and there is clear evidence of negligence. Company B has assets of RM200,000 to RM300,000 and now faces claims of several millions. Test cases have been brought against both Company B and X Company.

We were asked to advice X Company.

Tasks:

Part 1

I. Establish the relationship between X Company and Company A.

• Define holding company, subsidiary company, wholly-owned subsidiary company and separate legal entity.

II. Determine whether X Company can make claim for the loss of profit due to relocation of its business.

• Define lifting corporate veil – convince the court to lift the corporate veil.

Part 2

I. Determine whether X Company as the holding company is liable for the liability incurred by Company B, as a wholly-owned subsidiary company.

• Establish the general rule of separate legal entity - The general rule does not apply to X Company and its wholly-owned subsidiary company.

II. Determine whether X Company can bring an action against H for making a personal appeal in advertising campaign for the experiment on living persons which resulted deaths and severely maimed volunteers.

• Establish that H’s act is  ultra virus to the object clause in the Memorandum of Association of Company B.
• - H can be made jointly liable with Company B for its tortious wrongs.
• - H did not act in the best interest of the company.