Lifting the corporate veil Flashcards
Gilford Motor Co v Horne [1933] 1 Ch 935
- D was a former managing director of P. D made a promise in his contract with G that do not to solicit customers from his employer P at any time. D set up a company Z, in which his wife and a friend were the sole shareholders and directors.
o The clause: “MD shall not at any time while he shall hold the office of a MD or afterwards solicit, interfere with or endeavour to entice away from the company any person, firm or company who at any time during or at the date of the determination of the employment of MD were customers of or in the habit of dealing with the company.”
o H argued that the covenant is too broad to be enforceable —any strangers who bought spare parts in this way several times would come within the meaning of persons “ in the habit of dealing with the company.” - Held: no ambiguity in the covenant, and the covenantor has not ventured to go into the witness-box to say that he did not understand or was in any way embarrassed by the wording of the covenant.
o “I am quite satisfied that this company was formed as a device, a stratagem, in order to mask the effect carrying on of a business of Mr EB Horne. The purpose of it was to enable him, under what is a cloak or sham, to engage in business which, on consideration of the agreement…”
China Ocean Shipping Co v Mitrans Shipping Co Ltd[1995] 3 HKC 123 #HKcaseFollowingAdam
- P was trying to recover from Mitrans Shipping (D), a company which shared many senior employees with Mitrans Panama.
- Held: Using a corporate structure to evade legal obligations is objectionable, but using a corporate structure to avoid the incurring of any legal obligation in the first place is not objectionable. No liability or obligation on anybody’s part existed until the charterparties were entered into. Citing Adam—even though the parent and subsidiary company is a single economic unit, the distinction between the two here cannot be bridged in the law. Cannot lift the veil merely because it considers that justice so requires.
o “it was MP who entered into the charterparties and who assumed liabilities or obligations to P thereunder. P chose to deal with MP without insisting on a guarantee”
Hashem v Sharif [2008] EWHC 2380, Fam.
Issue: the wife alleged that two UK properties held by a company really belonged to her husband, and that the company was the husband’s alter ego, of which he had total control.
The husband was the only person to contribute or withdraw funds from the company. The company’s properties could not be sold without the husband’s consent, and he alone received any sale proceeds. Munby J emphasised that the requirements for piercing the corporate veil were identical in family and non-family contexts, and formulated six principles:
1. Ownership and control of a company do not themselves justify piercing the corporate veil.
2. The court cannot pierce the veil simply in the interests of justice, even in the absence of third-party interests.
3. The corporate veil can only be pierced where there is an impropriety.
4. This impropriety must be ‘linked to the use of the company structure to avoid or conceal liability’.15
5. The wrongdoer must both control the company and have misused it to conceal his wrongdoing.
6. The company may be a ‘façade’ even if it was not originally incorporated as such, as the purpose and use of the company may have changed over time. The question is whether or not it was being used for deception at the time of the relevant transactions. However, the court would only pierce the corporate veil so far as was necessary to provide a remedy for the particular wrong committed by the individuals controlling the company.
Held: the wife had not established that the husband possessed the requisite degree of control over the company to justify lifting the veil, and that there was no relevant impropriety to support intervention. The husband had merely taken advantage of the rules on corporate structure, and was entitled to the benefit of the principle in Salomon.
Toptrans Ltd v Delta Resources Co Inc
• Polo is said to be a facade of Delta (D1)
• Adopting the English judgment of Adams v Cape Industries, which accepted that there is one well-recognised exception to the rule prohibiting the piercing of the ‘corporate veil.’
o To decide whether it’s a mere facade concealing the true facts, the motive of those behind the company will be relevant.
o Key factor: (1) Control (indisputable in this case) & (2) Motive
• Evidence shows that the two companies that he controls and uses to conduct his business were used interchangeably in communicating with P. Both companies were his alter ego. In truth, nothing was being hidden. Both Delta and Polo are façades in the literal sense, rather than, for the moment, the legalistic Adams v Cape [supra] sense.
• By virtue of a piece of good opportunism they have got their hands on these containers belonging to Polo – and I don’t use the expression opportunism perjoratively, but unfortunately they have failed on the evidence to show exceptional circumstances which would justify a piercing of the ‘corporate veil’. In these circumstances there can be no justification for maintaining the injunction which must be discharged forthwith. The money paid into court to fortify the undertaking in damages must also be returned to the Plaintiff.
Liu Hon Ying v Hua Xin State Enterprise (Hong Kong) Ltd [2003] 3 HKLRD 347
Transfer of Business (Protection of Creditors) Ordinance (Cap 49) s 3
(1) Subject to this Ordinance, whenever any business is transferred, with or without the goodwill thereof, the transferee shall, notwithstanding any agreement to the contrary, become liable for all the debts and obligations, including liability for tax charged or chargeable under the Inland Revenue Ordinance (Cap 112), arising out of the carrying on of the business by the transferor.
- A debt was owed by C to P. At the time when P started claiming against C, D was already incorporated and commenced business. The ultimate controlling shareholder behind C and D gradually and continuously channelled C’s business to D and eventually to E. P’s claim is that there was a transfer of business
o D was incorporated and commenced business after the debt was incurred and owed by C to P and at the time when P started claiming against C for the debt. (para 78)
- Held: D was not incorporated to avoid liability but to conceal true facts H and thereby evade liability. Endorsing the evasion-avoidance dichotomy in China Ocean Shipping
Aktieselskabet Dansk Skibsfinansiering v Brothers (2000) 3 HKCFAR 70
- Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap 32) s. 275
o (1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the court, on the application of the Official Receiver, or the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.
