Corporate Veil Flashcards
Give some examples of statutory veil lifting.
- Taxation legislation;
- Disclosure and financial reporting (s399 and 409);
- Employment Rights Act 1996;
- Fraudulent and Wrongful Trading (ss213-4 IA 1986).
Which judgment dominated during the classic period?
Salomon v A Salomon Co Ltd
Why was Salomon not overturned at any stage?
It was a House of Lords case and the House of Lords could not overturn its judgments until the Practice Statement 1966
What did Lord Denning argue in DHN Food Distributors v Tower Hamlets?
Groups of companies should be viewed as one single entity.
What was the key question in the case of Adams v Cape Industries?
Whether Cape, the parent company, had a presence in the US through it subsidiaries.
In what three situations did Adams v Cape limit veil lifting to?
- Where the interpretation of a statute or document shows that the group of companies is to be treated as one;
- Where a company is being used as a sham or mere facade;
- Where there is existence of an agent-principal relationship.
Salomon v Salomon & Co [1897] AC 22 (House of Lords) facts
Facts:
- Mr Salomon set up the company following all the formalities and requirements in the CA 1862
- Intended and continued to be a private company
- The companies hit hard times and the debentures could not be covered when the company went into liquidation
Lord MacNaghten:
- Previous decisions where a misconception of the scope and effect of the CA 1862
- The conditions of the Act have properly been complied with then there is no reason to make it invalid; it does not make sense to invalidate incorporation due to the bulk of capital being issued to one person
- Having the agent rules would mean that no partnership could incorporate with unlimited liability
- The unsecured creditors only have themselves to blame for their misfortunes
- It is not against public policy or detrimental to the interests of creditors to have on predominant partner
Lord Halsbury:
- The statute has been complied with and does not specify anything to do with the extent or degree of interest
- The court should only recognise the artificial existence of the company not the motives or intentions of individual corporators
Macaura v Northern Assurance [1925] AC 619 (House of Lords) facts
Facts:
- Timber owned by the corporation, dominant shareholder insured the timber in his own legal capacity (as apposed to as the company)
Lord Sumner:
- Though the timber lay on his land by permission, he had no responsibility to its owner for its safety
- Had no property or equitable interest in the timber
- Neither as a creditor or shareholder could he insure the company’s assets
Notes:
- In JJ Harrison v Harrison (2001) the court state that there is no rule of company law which constitutes a company the trustee of its property and its members or shareholders beneficiaries of that trust
Q
Chandler v Cape plc [2012] EWCA Civ 525
facts
Facts:
- The claimant, Mr Chandler, was employed by a subsidiary of Cape plc and during the course of his employment was exposed to asbestos fibres causing asbestosis:by this time the subsidiary entity had been dissolved
- His estate bought a claim alleging Cape plc had owed (and breached) a duty of care to Mr Chandler
Key points:
- Cape plc assumed responsibility and owed a direct duty of care to Mr Chandler which it breached
- The CA were careful to stress that the duty of care of a parent company to subsidiary employees was not automatic and only arose in particular circumstances; it is therefore not piercing the corporate veil
- The parallel duties of care between the parent/subsidiary arose because (i) the parent company and subsidiary had relatively similar businesses; (ii) the parent company knew (or ought to have known) that the subsidiary’s system of work was unsafe; and (iii) the parent company knew (or ought to have foreseen) that the subsidiary or its employees would rely on its using that superior knowledge for employee protection
- It is likely that courts will approach group structures holistically; unlikely to make a difference if plc parent is UK
Further Notes:
- Same affect as veil lifting but a tort action
Woolfson v Strathclyde Regional Council [1978] SLT 159
Facts:
- The claimants claimed that the facts where analogous to those in DHN and should therefore be allowed compensation following the compulsory purchase of the premises
Distinct from DHN:
- Woolfson did not own all the shares in the compulsorily purchased property
- Campbell Ltd (Who Mr Woolfson virtually controlled) had no control over the land
Lord Keith:
- The only exceptions to SCP is where the company is a mere facade concealing the true facts
- Although cannot explicitly overrule DHN in this case as facts too different, in obiter expresses that DHN is wrongly decided… CA in DHN wrongly interpreted what is meant by a mere facade (doubted CA’s application of SCP)
Notes:
- General approach adopted in Adams v Cape; possibly overturning DHN although not distinctly
DHN Food Distributors Ltd v Tower Hamlets LBC [1976] 3 All ER 462
Facts:
- The council compulsorily acquired the premises, causing DHN to shut down
- There was subsantial compensation available for disturbance, which had already been given to Bronze
- DHN also wanted compensation as parent company of Bronze
- DHN’s only assets where Bronze’s profits… could only claim for loss of profit if holding a business and loss of property for holding an asset..
- The CA held that the company should be viewed as a single economic entity and that consequential compensation should be paid… this is as DHN where virtually Bronze with the same directors, shareholders and common interest in maintaining the property
Notes:
- Lord Denning thinks this sharply contrasts with the case law
- There are statutory exceptions to group companies being treated as separate economic entities so it seems illogical to create a new common law doctrine that isn’t covered in legilsation
Gilford Motor Co v Horne [1933] Ch 935
Facts:
- When D left P they covenanted in a written agreement not to solicit customers of the company after leavings its employment
- D formed a company to solicit customers (where he and his wife where sole legal owners)
Judgment:
- P was granted an injunction against both D and the company
Lord Hanworth MR:
- He agreed with Farwell J that D obviously carried out the business (his wife was no part, D was always the boss)
- “The company was formed as a device, a stratagem, in order to mask the effective carrying on of a business of Mr Horne”
- In both this and Jones v Lipman the company had been deliberately set up in an attempt to evade an existing obligation, this was emphasized in Adams v Cape industries
Further Notes:
- Injunction enforced against both Horne and the company and was described as a “sham” set up for illegitimate reasons
Jones v Lipman [1962] 1 WLR 832
Facts:
- L set up a company to purchase his home so he could avoid selling it
Judgment:
- The company was a device and a sham to avoid his obligation
