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Company Law Coursework

...while cases on the point show that there is much divergence on the nuanced aspects on when the separate personality of a corporation can be avoided, one argument which holds good in almost every case is that of prevention of injustice. Whenever the court is satisfied that a particular decision would result in injustice...it leans towards deciding in favour of the decision which prevents injustice. Mohanty, S & Bhandari, V The evolution of the separate legal personality doctrine and its exceptions: a comparative analysis (2011) Company Lawyer, volume 37, issue 7, pages 194-205. (Available on WestLaw) Undertake a critical evaluation of the accuracy of the above view that the English courts remove the corporate veil in pursuit of justice. Comment on how accurate the statement is.

In order to ascertain a logical critical evaluation, one should first consider what the corporate veil is and why it has come into existence. During the case of Salomon Lord MacNaughten held The company is at law a different person the company is not in law the agent of the subscribers. Nor are the subscribers as members liable at page 51. The effects of this controversial judgement have been described as calamitous by some academics and moving from strength to strength by others. However it is widely regards as positive through promoting entrepreneurial risk to facilitate economic growth.
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One should consider why; if the courts have great reluctance to remove the veil; exceptions still exist. The law here is still regarded as murky water due to the non-exhaustive list of when the veil is removed. This uncertainly, although pains academics, is important for the law to adapt to new methods of exploiting the corporate form. Professor Moore considers the topic one of the most uncertain, and as a result, disputed [areas] in English company law . Initially through common law development the rational has been to reduce exploitation of the corporate form such as the use of phoenix companies. Through common law, exceptions such as Fraud, Sham & Faade, Agency relationship, Single Economic Unit, National Emergency and Justice exist; the latter of which is the
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Salomon v Salomon Kahn-Freund, Some reflections on Company Law Reform 3 Hicks & Goo page 82 4 Hicks & Goo page 96-104 5 Smith & Keenan page 30 6 Moore, A temple built on faulty foundations

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primary concern of this essay. When discussing justice, one should first consider the case of Wallersteiner where the phrase in the interest of justice first appeared. In this case Lord Denning held that the associated companies were merely just puppets of Dr.
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Wallersteiner and the courts should pull aside the corporate veil and treat these concerns as being his creatures for the companies were his agents to do as he commanded. Repeatedly throughout the judgement one observes both Lord Denning M.R and Scarman L.JJ using the term justice or injustice. Neither law lord felt that the current legal principles for removing the veil applied. Further they felt through the facts of the case it was clear the veil should be lifted. Therefore, here, the principle of justice was created. Lord Denning has previously shown an attentive ear towards casting aside the veil. Littlewoods sees Lord Denning dissenting The courts can and often do draw aside the veil. They can, and often do, pull off the mask. It should further be noted how passionate Lord Dennings speech was. Hicks and good go on to say he has a notable enthusiasm for removing the veil. One should consider his personality as a law lord, being known as the peoples judge and given the strong emotional approach it can be argued Lord Denning acted overzealously in removing the Salomon principle. Further given the gravitas nature of the judgements impact on economics it should be reconsidered. As Lord Denning does not consider specifically when the veil should be lifted unsecured creditors would be uncertain as to whether this legal principle truly grants them protection, also removing Salomons initial incentive to entrepreneurs through limited liability. Lord Denning further champions his learned opinion In DHN Food Distribution , removing the corporate veil so the claimant would not be defeated on a technical point. One should consider the law has progression, moreover how other law lords have ruled on similar matters of law. Woolfson is the first case to see a regression from Lord Dennings approach. Here, Lord Keith distinguishes DHN due to dissimilar facts. He dissents it is appropriate to pierce the corporate veil only where special circumstances exist a reversion back to the previously upheld categories of law. One should further consider Lord Diplock in Dimbleby & Sons Ltd
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where he dissented the corporate

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Wallersteiner v Moir Littlewoods v IRC 9 http://www.guardian.co.uk/uk/1999/mar/06/claredyer1 10 DHN v Tower Hamlets Council 11 Woolfson v Strathclyde Regional Council 12 Dimbleby v National Union of Journalists

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veil [should be seen] in view of its raison d'etre Finally, the conclusive judgement in the area seems to be Adams v Cape . Here, the House of Lords set down the three categories the law would permit removal of the veil (mentioned above). Slade LJ went on to say the court is not free to disregard the principle of Salomon merely because it considers that justice so requires further moving away from the approach taken by Lord Denning. This new approach removes justice as a principle itself, and has subsequently been followed or applied in many cases including Hare.
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This closed approach improves the law.

Unsecured creditors will grasp a better understanding of the law and when the exceptions will apply to them, although the new principle laid down goes some way in taking protection away from them and reverting back to Salomon. This decision does however highlight Salomons original intention and will restore confidence to entrepreneurs about limited liability. Finally Mohantys direct comment leans towards deciding in favour of the decision which prevents injustice is directly rebutted by Slade LJ stating whether or not it is desirable to use the corporate form [as what is commonly referred to as a special purpose vehicle] does not matter, [it] is inherit in our corporate law In conclusion, it is submitted the courts will no longer remove the veil simply in the pursuit of justice as per Adams v Cape and subsequent following cases will apply this principle. Mohanty incorrectly considers the application of the test valid.

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Adams v Cape Industries plc Customs v Hare (unreported)

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BIBLIOGRAPHY

Word Count 1000 including footnotes

Books Hicks, A. and Goo, H.S., (2011). Cases and Materials on Company Law, 7th Edition Oxford : OUP Gower and Davies, Principles of Modern Company Law 8th ed, Sweet and Maxwell, Thomas Reuters 2008. Wild & Weinstein, Smith & Keenans Company Law, 15th ed., (Pearson, 2011) Hannigan, Company Law, 2nd ed. (Oxford University Press, 2009) Hicks & Goo, Cases and Materials on Company Law, 7th ed., (OUP, 2011) Dignam & Lowry, Company Law, 6th ed. (Oxford University Press, 2010) Boyle & Birds, Company Law, 8th ed., (Jordans, 2011) Mayson, French & Ryan on Company Law, 26th ed. (Oxford University Press, 2009) Derek French, Blackstone's Statutes on Company Law 2010-2011 (OUP)

Articles Kahn-Freund, O Some reflections on Company Law Reform 7 Modern Law Review (1944), page 5466. Moore, A temple built on faulty foundations (2006) JBL 180 Griffin, S Limited Liability: A necessary revolution (2004) Company Lawyer, pages 99-101. Scanlan, G The Salomon Principle Company Lawyer (2004), volume 25, issue 7, page 196. Kahn-Freund, O Some reflections on Company Law Reform 7 Modern Law Review (1944), page 5466. Mohanty, S & Bhandari, V The evolution of the separate legal personality doctrine and its exceptions: a comparative analysis (2011) Company Lawyer, volume 37, issue 7, pages 194-205. Griffin, S The one-man company and the removal of corporate personality Tham, C H Piercing the corporate veil: searching for appropriate choice of law rules Lloyds Maritime and Commercial Law quarterly (2007), pages 22-43. Linklater, L Piercing the Corporation Veil The never ending story Company Lawyer (2006), Volume 27, Issue 3, pages 65-66. Friedman, P & Wilcox, N Piercing the corporate veil New Law Journal (2006), page 148. Hawke, N & Hargreaves, P Corporate Liability: Smoke and Mirrors International Company and Commercial Law Review (2003), volume 14, issue 2, pages 75-82.

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Nakajima, C Lifting the Veil Company Lawyer (1996), volume 17, issue 6, pages 187-188.

Ottolenghi, S From peeping behind the corporate veil, to ignoring it completely Modern Law Review (1990) 53 Modern Law Review, pages 338-353.

Legislation The Companies Act 2006 Insolvency Act 1986

Cases Salomon v A Salomon & Co Ltd [1897] AC 22 Wallersteiner v Moir [1974] 1 WLR 991 Littlewoods Mail Order Stores v IRC [1969] 1 WLR 1214 DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852 Woolfson v Strathclyde Regional Council [1978] UKHL 5 Dimbleby and Sons Ltd v National Union of Journalists [1984] 1 WLR 427 Adams v Cape Industries plc [1990] Ch 433 Customs and Excise Commissioners v Hare (unreported) South Hetton Coal co. Ltd v North-Eastern News Association Ltd [1894] 1QB133 Lee v Lees Air Farming [1961] AC 12 A-Gs Reference (no. 2 of 1982) [1984] 2 All ER 216. Re Noel Tedman Holdings Pty Ltd [1967] QdR 561 Tate Access Floors Inc. v Boswell [1991] Ch 512, Macaura v Northern Assurance [1925] AC 619. Gilford Motor Co. v Horne [1933] Ch 935 Smith, Stone & Knight v Birmingham Corporation [1939] 4 All ER 116 Bank of Tokyo v Karoon [1987] AC 45:

Other Written Sources None Other Sources http://www.guardian.co.uk/uk/1999/mar/06/claredyer1