ICAS TC Business Law Module 9 Flashcards
Salomon v A Salomon & Co Ltd 1897
Facts: Salomon was a prosperous boot and shoe manufacture who initially ran his
business as a sole trade. He then decided to form a limited company to take over
his business. This company was registered as A Salomon & Co Ltd. The subscribers
to the memorandum were Salomon, his wife and five of their children, each of whom
took one £1 share. The business was sold to the company and in return Salomon
was allotted 20,001 fully paid £1 shares and £10,000 of secured debentures, as a
result of which he became a secured creditor of the company as well as a member.
Salomon was the managing director and controlled the company.
When the business encountered hard times the company had to be wound up. The
company owed over £7,000 to unsecured creditors, as well as the £10,000 it owed to
Salomon. The assets of the company totalled just over £6,000. The unsecured
creditors argued that, although the company had been incorporated under the
Companies Act, it was a mere sham and was in fact Salomon under another name.
Held: The company was a separate legal entity and it was the company, and not
Salomon, who owned the business. The result was that the assets went first towards
paying off Salomon’s secured debentures and the other creditors received nothing.
Lee v Lee’s Air Farming Ltd 1961
Facts: Where the sole governing director of a company was also employed at a
salary as its chief pilot, it was held that he was a ‘worker’ within the meaning of a
statute which entitled his widow to be paid compensation after he was killed whilst
working for the company. This ruling demonstrated that the deceased and the
company were separate legal personalities. Lee could, as a director, negotiate a
contract of employment with himself as chief pilot. This decision overturned an earlier
ruling (in a lower court) that he could not be a ‘worker’ and also an employer.
Macaura v Northern Assurance Company 1925
Facts: Macaura had run a timber yard for a period of time as a sole trader. He then
set up a company to which he sold his timber business. However, he continued to
insure the company’s property i.e. the timber, in his own name. The timber was
subsequently destroyed by fire.
Held: He could not claim for the loss of the timber against these policies because he
did not have an insurable interest in the timber. The timber belonged to the company
and not to him and it was the company who should have insured the timber not Mr
Macaura.
Prest v Petrodel Resources Ltd 2013
Facts: Mr Prest owned and controlled a number of offshore companies which owned
seven UK residential properties, including the matrimonial home. The issue the court
had to determine was whether it could order the transfer of these properties to
Mrs Prest, as part of a divorce settlement, given that the properties were legally
owned by the companies and not Mr Prest.
Held: Although there was no evidence in this case that Mr Prest had set up the
companies to evade a legal obligation, the court found that Mr Prest’s lack of
openness regarding the companies led it to conclude that the properties were being
held by the offshore companies on bare trust for him. As Mr Prest was the beneficial
owner of the properties, the court could order that the properties be transferred to
Mrs Prest.
Gilford Motor Co v Horne in 1933
Facts: An ex-employee tried to evade a restrictive covenant in his contract of
employment by forming a company and doing in the name of the company what he
had agreed not to do personally.
Held: The court ‘lifted the veil’ in this case and granted his former employer an
injunction, preventing use of the company in this way.
Jones v Lipman 1962
Facts: Mr Lipman entered into a contract to sell a house to Mr Jones but then
changed his mind. An order of specific performance was made against him but, in
an attempt to avoid the order, Mr Lipman set up a company, which he owned and
controlled, and transferred the house to that company.
Held: The court granted Mr Jones an order of specific performance against both
Mr Lipman and the company.
Daimler Co Ltd v Continental Tyre and Rubber Co Ltd 1916
Facts: All the members of the claimant company, except one, were German
nationals.
Held: As the persons in control of the company were enemy aliens, the company
could not take action in the English courts to enforce the payment of a debt.
Adams v Cape Industries plc 1990
Cape Industries, an English-registered company, operated using a number of whollyowned
subsidiaries in the USA and other countries. A number of arguments were put
forward in an attempt to show that a US judgement should be enforced against Cape
Industries in the UK but all arguments failed. Specifically, the single economic unit
argument failed i.e., that Cape Industries and its subsidiaries were, in reality, one
economic unit. Slade J said that there is no general principle that all companies in a
group of companies are to be regarded as one. On the contrary, the fundamental
principle is that each company in a group of companies is a separate legal entity
possessed of separate legal rights and liabilities.
