Corporate Veil

Question 1

Give some examples of statutory veil lifting.

Answer 1

1. Taxation legislation;
2. Disclosure and financial reporting (s399 and 409);
3. Employment Rights Act 1996;
4. Fraudulent and Wrongful Trading (ss213-4 IA 1986).

Question 2

How does Ottolenghi categorise veil lifting?

Answer 2

Peeping = where the veil is lifted to get information
Penetrating = where the veil is disregarded and liability attributed to members
Extending = where a group of companies is treated as a single entity
Ignoring = where the company is not recognised at all

Question 3

How does Dignam & Lowry interpret veil lifting?

Answer 3

In three periods:

1. Classic era (1897-1966)
2. Interventionist period (1966-1989)
3. Back to basics (1989 - present)

Question 4

Which judgment dominated during the classic period?

Answer 4

Salomon v A Salomon Co Ltd

Question 5

Why was Salomon not overturned at any stage?

Answer 5

It was a House of Lords case and the House of Lords could not overturn its judgments until the Practice Statement 1966.

Question 6

Did the court lift the veil at all during the classic period?

Answer 6

Yes, in exceptional circumstances eg

1. dealing with the enemy (Daimler v Continential Tyre);
2. defendant set up a company to solicit customers he was prohibited from soliciting due to previous employment contract (Gilford Motor Co v Horne);
3. setting up a company to avoid an estate contract (Jones v Lipman);
4. setting up a company to force compulsory purchase of minority shareholdings (Re Bugle Press).

Question 7

What did Lord Denning argue in DHN Food Distributors v Tower Hamlets?

Answer 7

Groups of companies should be viewed as one single entity.

Question 8

What was the key question in the case of Adams v Cape Industries?

Answer 8

Whether Cape, the parent company, had a presence in the US through it subsidiaries.

Question 9

In what three situations did Adams v Cape limit veil lifting to?

Answer 9

1. Where the interpretation of a statute or document shows that the group of companies is to be treated as one;
2. Where a company is being used as a sham or mere facade;
3. Where there is existence of an agent-principal relationship.

Question 10

Why did the court not find Cape’s subsidiaries in the US not to be mere facades?

Answer 10

The court said the subsidiaries were fulfilling tax policies.

Question 11

In which case post-Cape did the court ignore the approach laid down by Cape?

Answer 11

Creasey v Breachwood

Question 12

What happened in Creasey v Breachwood?

Answer 12

Mr. C was dismissed from Breachwood Welwyn Ltd as general manager and claimed wrongful dismissal. All of Welwyn’s assets were transferred to Breachwood Motors Ltd after creditors had been paid off. Welwyn was ordered by the court to pay off Mr. C but instead the company was dissolved. Mr. C applied to have Breachwood Motors substituted as the claimant. The court agreed.

Question 13

Why has Creasey v Breachwood been criticised?

Answer 13

The judgment mixed up the argument for lifting the veil where the company is a mere facade and based the decision on breach of duties.

Question 14

Which case overruled Creasey v Breachwood?

Answer 14

Ord v Belhaven Pubs Ltd

Question 15

What happened in Ord v Belhaven Pubs Ltd? What was the judgment?

Answer 15

B went through a reorganisation of the business which left it with no assets to pay Mr. O. The court held the reorganisation was legitimate because it had been undertaken due to financial crisis.

Question 16

What is the ratio in Trustor v Smallbone (No 2)?

Answer 16

It is possible for a company to be held as a mere facade even though it was not originally set up as a sham. The court also held that to lift the veil the company must be used for some impropriety. Impropriety alone, unconnected to the corporate form, will not form the basis of a claim.

Question 17

Give two cases in which the court found an express agency agreement that meant they could lift the veil.

Answer 17

1. Southern v Watson

2. Rainham v Belvedere

Question 18

Give two cases in which the court found an implied agency agreement and subsequently lifted the veil.

Answer 18

1. Smith, Stone & Knight v Birmingham

2. Re FG (Films) Ltd

Question 19

In what situation do we see the courts again more willing to find groups of companies as one single entity?

Answer 19

Personal injury to employees of subsidiaries (Connelly v RTZ Corpn plc, Lubbe v Cape Industries plc, and Chandler v Cape).

Question 20

What are the justifications and criticisms for the cases of Connelly, Lubbe and Chandler?

Answer 20

The justification for hearing in England a case that concerned personal injury suffered in a subsidiary in Southern Africa was the courts in those countries were not able to dispense justice and multinational businesses should take responsibility for their subsidiaries’ health and safety. The criticisms is that there is potential for floodgates and limited liability is corrupted.

Question 21

If the courts have opened up to personal injury torts, have the courts lifted the veil with respect to economic torts eg negligent misstatement?

Answer 21

Rarely (Williams v Natural Life Health Foods Ltd c/f MCA Records Ltd v Charly Records Ltd (No 5))

Question 22

When did the courts consider that an individual director or employee could be held liable for negligent misstatement and the court could pierce the veil?

Answer 22

If there was an assumption of personal responsibility that would give rise to a special relationship between the director or employee and the claimant.