The Facts: A Partnership Undermined
In the world of business partnerships, “utmost good faith” is more than just a polite phrase—it is a binding fiduciary duty. But what happens when that trust is shattered, and a partner tries to use corporate shells and land laws to hide their tracks?
The Federal Court of Malaysia’s landmark decision in Takako Sakao v. Ng Pek Yuen & Anor [2009] 3 MLRA 74 FC offers a masterclass in how equity unmasks fraud and ensures that justice is not defeated by technicalities.
The story begins with Takako Sakao, a Japanese citizen, and her business partner, Ng Pek Yuen. Together, they operated a restaurant and decided to purchase the building where they did business. Sakao contributed RM194,610 toward the purchase, with the mutual understanding that the property would be registered in both their names in equal shares.
Instead, Ng Pek Yuen purchased the property for RM950,000 and registered it solely in her name. Years later, she sold the building for a massive profit (RM1,930,000) to a company owned by her common-law husband. Sakao was left with nothing but a broken promise.
1. The Power of Silence: The “Adverse Inference”
When the case went to trial, Ng Pek Yuen chose not to testify. The lower courts ignored this, but the Federal Court was scathing, noting that her absence should have discredited her case entirely.
The Court cited Sarkar on Evidence:
“It is the bounden duty of a party personally knowing the whole circumstances to give evidence and to submit to cross-examination. Non-appearance as a witness would be the strongest possible circumstance to discredit the truth of his case”.
Because Ng Pek Yuen “studiously refrained from giving evidence,” the Court ruled that Sakao’s testimony regarding the RM194,610 contribution must be presumed true.
2. Defining “Constructive trust”
The legal battle pivoted on the type of trust created. While the lower courts referred it a “resulting trust,” the Federal Court identified it as a constructive trust born from a breach of fiduciary duty.
The Court explained the concept through the words of Millett LJ:
“A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property… to assert his own beneficial interest in the property and deny the beneficial interest of another”.
By registering the property solely in her name and denying Sakao her share, Ng Pek Yuen was guilty of equitable fraud.
3. Piercing the “Corporate VEIL”
The second respondent—the company that bought the property—claimed they were innocent third-party purchasers. The Court saw through this “mere facade”. Because the company was the “alter ego” of the first respondent’s husband, her knowledge of the fraud was attributed to the company.
The Court quoted Russell J from Jones v. Lipman:
“The defendant company is the creature of the defendant, a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity”.
4. Can Non-Citizens Claim Property?
The respondents then argued that Section 433B of the National Land Code (NLC) barred Sakao, a foreigner, from claiming an interest in the land without prior state approval.
The Federal Court dismissed this, clarifying that Section 433B applies to express trusts (those created intentionally and registered), not constructive trusts. Since a constructive trust is “imposed by law” to fix a wrong, it does not fall under the NLC’s restrictions for non-citizens. Sakao was a victim of fraud, not someone trying to bypass land laws.
The Verdict
The Federal Court allowed the appeal, ruling that Sakao was entitled to a half share of the property as a beneficiary.
The Takeaway: In the eyes of the court, a business partnership is a relationship of “utmost good faith”. You cannot hide behind silence in court, nor can you hide behind a corporate “mask” to deprive a partner of their rightful interest.
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified lawyer for your specific legal needs.
