Separate Legal Personality - Key Cases Flashcards
Salomon v Salomon
Lord Halsbury
- Seven shareholders statutory criterion met
- Fraud exception
- Shareholders aware of conditions under which company was formed and the conditions of the purchase – No fraud
- Erlanger v New Sombrero Phosphate Co – “Persons who purchase property and then create a company to purchase from them the property they possess, stand in a fiduciary position towards that company, and must faithfully state to the company the facts which apply to the property, and would influence the company in deciding on the reasonableness of acquiring it.”
- No fraud, no agency, real company = No issue and no prohibition in Act
Lord Watson/Lord Herschell
- Seven members and creditors could have sought protection or enquired into the share structure of the company
Lord MacNaughten:
- Act complied with – Memorandum of association signed and registered with share capital details
- All who took shares aware of circumstances
- Conditions complied with – Seven members, no prohibition on blood relationships, one share minimum criterion met
- Re Banglan Hill Colliery Co – Giffard LJ – Companies Act enabled a struggling colliery to become a LL company to avoid the owners being personally liable for more debt
- Lecture quotes
Lord Davey:
- North West transportation Co v Beatty – Contract with bulk of shares and have binding contract on the votes of that shareholder
Lee v Lee’s Air Farming Ltd [1960] (Privy Council)
Lord Morris:
- Deceased undertook piloting activities and paid wages by the company for doing so – Not governing director in these instances
- “The deceased was in some contractual relationship with the company. That relationship came about because the deceased as one legal person was willing to work for and to make a contract with the company which was another legal entity. A contractual relationship could only exist on the basis that there was consensus between two contracting parties.”
- Not “a sham or a mere simulacrum”
- Lord Halsbury in Salomon – If a company has been legally formed, then it has rights and liabilities, and its transactions are legally valid.
- Lord MacNaughten in Salomon – “if it merely means that there is a predominant partner possessing an over- “ whelming influence and entitled practically to the whole of the „ “ profits, there is nothing in that that I can see contrary to the true intention of the Act of 1862, or against public policy or detrimental to the interests of creditors.”
- Company giving orders and creating the deceased’s obligation, still be the case if the governing director changed
- Inland Revenue Commissioners v Sansom – John Sansom Ltd could give loans to John Sansom the individual – SLE
- Fowler v Commercial Timber Co Ltd – MD of defendant, agreed to wind up failing company voluntarily and dismissed – Allowed wrongful dismissal – No implied term to lose right to seek damages in these circumstances – Two positions of plaintiff as MD and company director/shareholder
- Article 33 of the Company’s AoA – Master and servant relationship contemplated
- Profits company’s not the deceased
- Right of control of company – Give orders to its chief pilot
- Plaintiff could have been contractually bound to serve the company even if retired as GD
Battle v Irish Promotion Arts Centre [1968] (SC)
O’Dálaigh CJ:
- Scriven, Frinton, Trintonia
- “Infirmity” of the company
- MD use own funds
Coffey v Tara Mines Ltd [2007] (HC)
O’Neill J:
- Battle GP
- Budd J in PLMB v PHJ and Keane J in RBv AS
- GJ Mannix NZ case
- Not argued = Not decided
- Inherent jurisdiction
- Allow in this case
AIB v Aqua Fresh Fish Ltd [2018] (SC)
Finlay Geoghan J:
- Battle
- Laffoy J in Dublin City Council v Marble and Granite Tiles Ltd
- D/SH - Legitimate personal interest in the application
- Coffey v Tara Mines Ltd - HC and SC
- McDonald distinguished as defendant not being sued personally
- Companies Act 2014 – s. 868(6)
-Risk of a costs order prohibits defence in court
-Challenges in administration of justice and fair procedures with litigants in person
- No money and nature of business not applicable
Roundabout Ltd v Beirne
Dixon J:
- Salomon - Two separate legal entities
- Other factors beyond the trade dispute
- Imagine a totally unconnected company bought the pub
- Ferguson case – Distinguished as company took over a partnership with going concern so same legal effect as if the partnership had been converted into a company
- New company are not employers
Re Bugle Press Ltd
Lord Evershed MR:
- Distinguished Re Hoare and its application in Re Press Caps Ltd – SH wholly independent of transferee company – Maugham J in Re Hoare – Fair purchase price. Same by Vaisey J in Re Sussex Ltd
- Always able to get rid of minority SH – In principle, contrary to the absolute right principle
- Section 209 – “Intended where offeror is independent of the shareholders in the transferor company” – Where like this case presumption of not invoking unless minority shareholder acting in a destructive manner “or highly damaging to the interests of the company” due to own personal motives
Harman LJ:
- “Fundamental rule of company law which forbids the majority of shareholders, unless the articles so provide, to expropriate a minority”
- Lack of compliance with statute – Delay and notice requirements
- Colourful language
Re Shrinkpack Ltd
Dublin City Council v Elton Homes Ltd
Barrington J’s obiter fraud comments
Cummings v Stewart
Meredith MR - Consistent with Solomon
Gilford Motor Company v Horne
Lord Hansworth:
- Wife director but no active part in the business’ management, son in a subordinate position, other director Howard an employee of the company; Horne – “Boss”/”Guvnor” – Dealings with company through Horne
- “Cloak or sham” to avoid breaching RoT clause
- Sham pointed agreed with by Romer LJ and Lawrence LJ
Jones v Lipman (Chancery Division)
Russell J:
- Elliott and H. Elliott (Builders) Ltd. v. Pierson – First defendant had the capacity to force the second defendant to sell the property to the plaintiff – General principle in these circumstances
- Gilford Motor Companies v Horne – “Cloak” or “sham” principle
- Current case – “a device and a sham, a mask”
Smith Stone and Knight v Birmingham Corporation [1939] (KB)
Atkinson J:
- Gramophone & Typewriter Ltd v Stanley – Cozens Hardy MR – Still SLE, directors still have powers, property and assets still the company’s.
- Inland Revenue Commissioners v Sansom – Sterndale LJ – Endorsed Cozens Hardy MR – Company as individual’s agent possible but then falls within Salomon not conclusive
- Question of fact – Looked to San Paulo Brazilian Rye Co v Carter, Apthorpe v Peter Schoenhofen Brewery Co Ltd, Frank Jones Brewery Co Ltd v Apthorpe, St Louis Breweries v Apthorpe – 6 criteria from lecture notes (Yes = More likely agency):
(1) Were the profits of the subsidiary treated as the profits of the holding company ?
(2) Were the persons running the business of the subsidiary appointed by the holding company?
(3) Was the holding company the ‘head and brains’ of the trading venture?
(4) Did the holding company govern the adventure, decide what should be done and what capital should be employed in it?
(5) Were the profits from the business the result of the ‘skill and direction’ of the holding company ?
(6) Was the holding company in ‘effectual and constant control’?
- Present case = Could have carried out business in own name
Ffyes Plc v DCC plc
Laffoy J:
- Salomon principle
- Keane on Company Law - SEE and not SEE cases
- Principles
1. Salomon
2. Fraud, illegal or improper purpose
3.Pierce where otherwise injustice or tax liability avoidance
4. Pierce where otherwise unjust consequences for outsiders dealing with the group
5. Salomon - Can still look to the individual company members for character and status and where resides
- Power Supermarkets Ltd v Crumlin Investments Ltd – Costello J in HC – Based on Smith and DHN Ltd – SEE if justice requires. Approved of by SC in Re Bray Travel Limited and Bray Travel (Holdings) Limited but justice of the case too wide a concept
- Facts of case – Loftus Green/DCC, LG’s interest in DCC’s shares, Relationship, avoid injustice
Prest v Petrodel Resources
Lord Sumption:
- Solomon general principles including “one man company” or company controlling another company
- Macaura v Northern Assurance Co Ltd [1925] AC 619, (HoL) – Lord Buckmaster – No shareholder has right to company property – Share of profit and surplus when wound up if applicable
- Abuse of rights – Misuse, fraud, malfeasance, evasion of legal obligations – ICJ – Re Barcelona Traction, Light and Power Co Ltd [1970] ICJ 3
- Lord Keith in Woolfson v Strathclyde Regional Council - Pierce only where SLP “mere facade concealing the true facts”
- Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177 – : (i) where the company was a “facade or sham”; (ii) where the company was involved in some form of impropriety; rejected “interests of justice” suggestion
-
- A v A and Ben Hashem v Al Shayif [2009] 1 FLR 115 – Munby J’s 6 principles:
(i) ownership and control of a company were not enough to justify piercing the corporate veil;
(ii) the court cannot pierce the corporate veil, even in the absence of third party interests in the company, merely because it is thought to be necessary in the interests of justice
(iii) the corporate veil can be pierced only if there is some impropriety
(iv) (iv) the impropriety in question must, as Sir Andrew Morritt had said in Trustor , be “linked to the use of the company structure to avoid or conceal liability”;
(v) to justify piercing the corporate veil, there must be “both control of the company by the wrongdoer(s) and impropriety, that is (mis)use of the company by them as a device or facade to conceal their wrongdoing”
(vi) the company may be a “facade” even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done.
- VTB Capital plc v Nutritek International Corpn [2012] 2 Lloyd’s Rep 313 – Munby J’s approach with two qualifications – Not necessary in order to pierce the corporate veil that there should be no other remedy available against the wrongdoer” And not enough to show that there had been wrongdoing – “The relevant wrongdoing must be in the nature of an independent wrong that involves the fraudulent or dishonest misuse of the corporate personality of the company for the purpose of concealing the true facts”
- Principle – Pierce where SLP “being abused for the purpose of some relevant wrongdoing”
- Gilford Motor Co Ltd v Horne [1933] Ch 935 and Jones v Lipman
- “But the recognition of a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company is, I believe, consistent with authority and with long-standing principles of legal policy”.
