CASELAW Flashcards
§§§§Salomon v A Salomon & Co Ltd [1897] AC 22.
Aron Salomon, a leather merchant and wholesale boot manufacturer who carried on business for many years as sole trader
Decided to set up a company, and it would consist of himself, his wife, his daughter and sons (7 people).*
Company created, as per the relevant act, and bought Salomon’s business at an over-valuation of £39,000
This was partly paid by issuing a debenture worth £10,000 to Salomon; and partly paid through shares
Shares 20,001 held by Salomon, 6 by wife and family
Thus, Salomon both the principal shareholder & principal creditor in the company
On the security of his debentures, a Mr Broderip paid Salomon £5,000
When the company went insolvent, Broderip was repaid based on his debentures, but aside from Borderip, the company could not repay the company’s unsecured creditors
The liquidator sued on behalf of unsecured creditors arguing, in effect, that company was a sham (‘a scheme’) intended to commit a fraud, and Salomon should be personally liable to the unsecured creditors, as the company’s principal, and it was his agent
AL Underwood Ltd v Bank of Liverpool [1924] 1 KB 775.
LEGAL CONSEQUENCES - CORPORATE PROPERTY
Underwood was the controlling shareholder in AL Underwood Ltd.
He occasionally endorsed cheques made out to the company into his own personal bank account.
Company changed ownership and sued Underwood and also the Bank
Underwood breached his duties as a director
The Bank was liable for Conversion for facilitating the misappropriation of funds, and so was Underwood, but he had dissipated the assets
Macura v Northern Insurance [1925] AC 619 –
CORPORATE PROPERTY
Macura sold £42,000 worth of Timber to a saw mill company in which he was the main shareholder.
The timber was then destroyed by fire.
Macura claimed on his insurance policy
However, the insurance policy was owned by Macura and the Timber was owned by the company.
Macura had no insurable interest; the insurance company did not have to pay
“No shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein”
Lennard’s Carrying Co v Asiatic Petroleum [1915] AC 705
TORT/ CONTRACT / CRIMINAL LAW
My lords, a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation … [T]he fault or privity is the fault or privity of somebody who is not merely a servant or agent for whom the company is liable upon the footing ofrespondeat superior; but somebody for whom the company is liable because the action is the very action of the company itself
The Lady Gwendolen [1965] 2 WLR 91.
COMPANY COMMITTING A TORT ?
A ship crashed as a result of not monitoring radar.
The captain had never been trained
The job of training the captain was the assistant managing director
His failure was seen as the company’s failure i.e. the court deemed he was sufficiently high up in the company for his actions to be equated with the company’s board of directors
Basically, whether the failure can be attributed to a high level (board) management failure (master’s fault) as distinct from VL (servant’s fault)
R v Gateway Foodmarkets Ltd [1997] 2 Cr App R 40 –
CORPORATE CRIME
employee fell to his death down an unguarded lift shaft. No reasonable precautions taken and company guilty of criminal sanctions under health and safety act.
Tesco Supermarkets v Natrass [1972] 2 AC 153
general rule that Managing director and company board represent and act as the company – their subordinates do not
R v ICR Haulage Ltd [1944] KB 551
ICR and 9 other people guilty of conspiracy to defraud after acts of MD were equated with acts of the company
Shinkwin v Quin Con Ltd Quinian [2001]
Pl lost finger and thumb at work Sued company as legal person And sued manager of factory Avoid separate legal personality Small company May not have enough assets Manager had failed to accurately train him Neighbour principle - proximity Independent tortious duty against manager
Williams v Natural Life Health Foods [1998]
Sues director not company as company has no assets
Negligent statement was made on behalf of the company not in personal capacity
D.H.N. Food Distributors Ltd. (wholesaler) v Tower Hamlets London Borough Council [1976] 1 W.L.R. 852
breakthrough case
Case involved three linked companies: DHN Food Distribution Ltd, DHN Distribution Ltd and Bronze Ltd
Local council sold land to Bronze Ltd in 1963, and in 1971 compulsorily purchased land for housing; DHN X 2 wanted compensation for ‘disturbance’ (compensation for closing down a business) above and beyond amount paid by to acquire land (£360,000)
DHN X 2 used premises as primary site for warehousing, repair, storage, etc, and went into liquidation shortly after council’s purchase
DHN Food Ltd (parent) owned all share capital in Bronze, directors of both companies were the same people, but Bronze charged DHN rent; DHN Distribution Ltd set up later, but same set up
For disturbance to be made out, one must have an interesting in land; anything less (tenancy), then nominal damages
What’s the problem for DHN X2
Power Supermarkets Ltd v Crumlin Investments (22 June 1981, Unreported)
Crumlin Investment Ltd (CIL) owners of Crumlin Shopping Centre
Power Supermarkets Ltd (PSL) entered into a lease for one of the units in the shopping centre*
Agreement included a covenant that there would not be any other unit let out exceeding 3,000 sq feet (intention to exclude other supermarket chains)
Shopping centre failed, and Crumlin Investment Ltd sold all the shares in CIL to Cornelscourt Shopping Centre Ltd (CSC)
CSC part of the Dunnes Stores group; and CSC only notionally separate from Dunnes Stores Ltd – all CSC shares owned by Dunnes family and controlled by them
CSC then leased a store in Crumlin Shopping Centre to Dunnes Stores (Crumlin) Ltd for a nominal sum & without many conditions, which then Power Supermarkets Ltd v Crumlin Investments (22 June 1981, Unreported) in direct competition with PSL
PSL sought an injunction against Dunnes Stores (Crumlin) Ltd (DSCL) to enforce the lease agreement even though DSCL not a party to it aimed at getting them to cease trading
Adams v Cape Industries [1990] Ch 433
Do not disregard slp on the justice of the case
An English company, Cape Industries plc, owned shares in multiple subsidiaries that mined and supplied asbestos around the world.
One of its subsidiaries NAAC, a marketing subsidiary, supplied asbestos to another company in Texas, whose employees sued Cape and NAAC
The employees sued and won the case in Texas; they tried to enforce the judgment in the UK against Cape
After the entry of judgment in the US and prior to the UK hearing, NAAC was liquidated and two new subsidiaries created
A requirement (as a matter of conflict of laws) was that Cape was present in the US for the claim to succeed; Cape argued that it was not and could not be held to be so through its subsidiary
In effect, the pls asked the court to lift the corporate veil
REJECTED ON THE FACTS OF SINGLE ECONOMIC ENTITY
Percival v Wright (1902) 2 Ch 421
DUTIES OF DIRECTORS
L negotiated to sell his 253 shares to 3 directors at a price of £12, 10 per share.
The 3 directors did not disclose that while negotiations were ongoing, they were in simultaneous negotiations to sell entire company at a much higher price per share than what they paid for the shares from the PL
PL argued that directors were in breach of fiduciary duty (can’t make a secret profit from your position as a fiduciary) by not disclosing the third party offer
Swinfen Eady J:
‘Directors must dispose of their company’s shares on the best terms obtainable, and must not allot them to themselves or their friends at a lower price in order to obtain a personal benefit. They must act bonâ fide for the interests of the company.’ (425)
BUT: Fiduciary duty owed to the company, not to the PL - he had no standing to enforce the duty
Allan v Hyatt (1914) 30 TLR 444
Directors may owe a duty to shareholders if they represent themselves as acting as agents for the shareholders
Crindle investments et al v Wymes [1998] 2 ILRM 275
DUTIES TO SHAREHOLDERS
“There can be no doubt that, in general, although directors of a company occupy a fiduciary position in relation to the company, they do not owe a fiduciary duty, merely by virtue of their offices, to the individual members. That was the effect of the decision in the leading case of Percival v. Wright [1902] 2 Ch. 421, but it has been emphasised in subsequent decisions that, in particular circumstances, a company director may indeed be in a position where he owes a fiduciary duty to individual shareholders”
Allied Irish Coal v Powell Duffryn [1998] 2 IR 519
Rejected any possibility of a general rule that that simply a close relationship between companies would mean that their separate legal personalities would be disregarded.
If a close economic connection was a basis for an exception to Salomon then every subsidiary company would not exist separately.
Similar to Re Polly Peck International plc (In Administration) (No 4), [1996] 2 ALL ER 987
the courts must look to the legal substance of any transaction, not its economic substance when deciding whether the company is a mere façade, regardless of any perceived injustice that arose when the company became insolvent.
R v Registrar of Joint Stock Companies [1931] 2 KB 197
Objects Clause - no longer required for private companies limited by shares
no objects contrary to the law.
No longer a requirement for private companies
Hennessy v National Agriculture and Industrial Development Association [1947] IR 159.-
Alteration of the constitution
An alteration of the articles was void as the company’s memorandum provided that an alteration of the articles was only valid with the consent of the Minister for Industry and Commerce.
No such consent given and so alteration was not valid.
Company as a whole??? - Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656
ried to alter articles to remove “not being full paid up”.
The reason was that a member had died personally owing the company £6,000 and the company wanted to extend the lien over the shares despite them being fully paid i.e. so they could take back the shares.
“the power to alter the articles must be sued for the benefit of the company as a whole”
Alteration valid as it benefited the company, even at the expense of 1 shareholder
Lien – a right to keep possession of some property – here shares – until a debt paid; it is a security interest granted or demanded over some property whether real or personal (meaning tangible or intangible; a share is intangible property…the property right is basically a right of action to redeem the share, so in the above case subjecting it to a lien)
Seems also to imply that benefit of company, as distinct from its members but ambiguous, Greenhalgh v Arderne Cinemas Ltd [1950] 2 All ER 1120 seemed to accept members as a whole. Later says all about whether minority v majority shareholders the key issue and minority basically expropriated.
Shuttleworth v Cox [1927] 2 KB 9
5 directors for life in constitution, 4 directors voted to change constitution to remove a director who failed to account for company monies on 22 separate occasions
Re USIT World PLC [2005] IEHC 285
directors duties
Pearl J on the difference between dishonesty and irresponsibility:
“Dishonesty is more fundamental and goes to the core of a person’s integrity…it implies something akin to improper dealing with money…while dishonesty will always amount to irresponsibility the converse is not true.”
Re: La Moselle Clothing [1998] 2 ILRM 345
Gives the most helpful outline of the criteria for detmining “acting honestly and responsibly”
a) The extent to which the director has complied with the requirements of the Companies Acts
b) The extent to which his conduct was so incompetent as to amount to irresponsibility – objective test
c) The extent of his responsibility for the insolvency
d) The extent of his responsibility for shortfall in the winding up
e) The extent to which he has displayed a lack of commercial probity and proper standards
Re Welfab Engineering Ltd [2016]
Court of Appeal held it would be “contrary to the whole notion of proper corporate regulation that passive directors would be exonerated
Courtney: “It is thought that to go looking for real moral blame in somebody who has abdicated all responsibility….is to lose sight of the wood for the trees: abdication is by definition irresponsible.” P1049.
Nash v Lancegaye Safety Glass Ltd (1958) 92 ILTR 11
An allotment of shares was made resuting in 51% for one shareholder
It was held that rather than being issued to raise capital, this was done to shift control and was thus an abuse of the directors’ powers
The allotment was deemed invalid as it was for an improper purpose
G & S Doherty Ltd v Doherty (Unreported, High Court, Henchy J., 19th June 1969)
A director and shareholder took a series of economically costly decisions
Other directors and shareholders removed him as a director and issued shares to reduce his influence
Issuance was invalid as it was not for a proper purpose (such as raising finance)
Regal (Hastings) Ltd v Gulliver [1942] ALL ER 378
codified duties
Directors cannot make a secret profit from their position as a fiduciary
Regal Hastings owned a cinema. The directors/shreaholders wanted to sell but thought it would be best to acquire more cinemas and sell a chain.
To buy the new cinemas they set up a subsidiary company. Regal hastings invested £2,000 but this was insufficient.
The directors of Regal hastings invested £3,000 of their personal funds and acquired shares in the subsidiary which then bought 2 other cinemas.
They then sold both companies rather than the cinemas.
The directors made significant profit from the sale. The buyers of the company sued them.
HOL held that diretcors had to account for the profit earned – no need for mala fides – fiduciaries cannot make a secret profit from their position as a fiduciary
Industrial Developments Consultants v Cooley [1972] ALL ER 162
Cooley was managing director and tried, on behalf of the company, to obtain a construction contract with an English public authority.
He failed but the public authority liked Cooley and offered him the contract personally. Cooley feigned illness and resigned from his job with IDC and started the new contract.
Industrial developments found out and sued Cooley for his profits, Cooley claimed they hadn’t won the contract in any case
Nonetheless, the CH he had breached his fiduciary duty
He gained the contract through his position as director, didn’t declare this, and had to account for the profit earned.
Spring Grove Services (Ireland) Ltd. v O’ Callaghan [2000] IEHC 62.
The duty not to compete with the company was recognised by the Irish courts
