IF STATUTORY VEIL LIFTING IS INAPPLICABLE, RELIANCE UPON COMMON LAW RULES |
In the given scenario, firstly, I shall assess the 'single economic unit' and 'mere façade' grounds, and then consider the use of agency, tort, or other means to avoid (rather than pierce) veil. |
MERE FACADE |
initially, common law rules were very uncertain |
will only occur due to (1) POLICY REASONS (2) COMPANY WAS OPERATING AS A MERE FACADE (FRAUD) |
- multiple cases arose before courts but Adams v. Cape Industries recognised no clear defination was provided |
defination since clarified in Prest v. Petrodale |
Prest v. Petrodale - exisitng legal obligation delibrately evaded NOT CONCEALED (Rossendale v Hurstwood (2021)) |
Woolfson v. Strathclyde - requirement of company being used as a mere façade concealing true facts (VTB v Nurtitek) |
- seems impropriety in company operations required |
using SLP to push liability onto another member of a group not impropriety (Prest) |
Trustor v. Smallbone - must be a connection between impropriety & use of corporate form (Prest - statute not to be used as vehicle for fruad) |
- motivation behind INITIAL incorporation importance - if corporate form used to evade existing liability, veil lifted |
HOWEVER, initial formation not important anymore (Ben Hashem v. Ali Shayif) (VTB v. Nutritek) |
Jones v. Lipman - land sold by individual who later transferred title to his incorporated company to avoid sale. veil lifted |
acc. to Salomon, company is SLP and cannot be sued but veil was lifted, held it was being used as a vehicle for fraud/ used as a mere facade |
Trustor v. Smallbone - use of company to hide misappropriated money |
Re Bugle Press - abuse of legislation |
SINGLE ECONOMIC UNIT |
- where 1 company owns all issued share capital in other companies - such is known as 'wholly owned subsidaries; defined u/s. 1159 CA, 2006 |
strict application of Salomon to this principle would make parent company, in theory, untouchable by law for abused by subsidiary due to limited liability |
- L. Denning in DHN v. IRC - Consider the group structure as a 'single economic unit' |
disapproved by HoL in Woolfson v Strathclyde |
Re a Company - veil will be 'pierced' if necessary to achieve justice ( also disapproved by HoL) |
Lowry disapproved interventionist approach, saying it will lead to uncertainty about safety of incorporation - use of policy to remove legal principles not welcomed |
Gallagher - neg. impact of veil lifting on other legal aspects (Director Duties, individual tax principles, Foss v Hartbottle rule) |
CURRENT AUTHORITY - ADAMS v.CAPE INDUSTRIES* |
Facts: Cape (UK based company) held multiple subsidiaries, some of which operated in US. Cape denied enforcement of ruling by US courts against its subsidiaries (jurisdiction). |
UK courts held US judgement to only be enforceable if Cape was present in US or had taken part in US proceedings (neither was true) |
Adams sought to lift veil to show that Cape was present in US through its subsidaries |
COURTS HELD ----- on what grounds should NOT veil be lifted |
Denied Re A Company - lifting to avoid injustice |
Denied DHN - 'single economic unit' |
ACCEPTED GROUNDS |
4. mere façade concealing true facts - to avoid pre-existing obligation (Jones v. Lipman) |
5. single economic entity - where upon proper reading of a CONTRACT or STATUE, appears that multiple companies in a group are being treated as one (Beckett Investment v Hall) |
however, given the limited scope of this ground, the veil remains largely 'opaque and impassable' (Adams) |
Raja v Van Hoogstraten - recent shift of courts from narrow approach |
6. agency principle - an arrangement in which one entity legally appoints another to act on its behalf ( principle-agent relation) |
express - through agreement or contract |
implied - observance of daily transactions |
Smith, Stone & Knight - criteria for agency established (profits, director, shareholders , constant control) |
Millam v Print Factory - passes where attribution of high level of control by parent |
subsidiary must be incapable of independent action (Re FG (Films)) |
agency can't be presumed from closeness of operations between parent & subsidiary (Yukong Line v Rendsburg) |
EXCEPTIONS TO ADAMS |
Creasey v. Breachwood Motors - veil disregarded where common directorship + membership AND assets transferred b/w 2 w/o Ds considering their duties as such |
{fa-asterisk}} overruled in Ord v. Bellhaven Pubs - reorganization of sister companies for legitimate reason is not mere façade (motive of Ds to be considered) |
Prest v. Petrodel - where company under existing legal obligations deliberately evades it (Evasion) enforcement of obligation is deliberately frustrated by interposing a company under another company's control (Concealment) ---- VERY LIMITED APPLICATION |
Raja v Van Hoogstraten - shift from narrow approach, veil lifted even if formation of company was genuine |
TORT |
tortious liability against member (or director) for activities carried out through medium of the company has possibility of negating Salomon |
Godwin v Shell - however, courts generally hesitant to impose such on potential of damaging SLP principle (Thompson v Renwick - criteria for establishing tortious liability, following ruling of Caparo v. Dickman) |
parent & subsidiary in the same principle line of business --- NO DUTY IF PARENT NOT DIRECTLY ENGAGED IN SAME ACTIVITY [purely holding company] (Thompson) |
parent controlled subsidiary in matters related to commission of tort (proximity) |
parent knew/ought to have known subsidiary's actions risked injury |
if proven, is it fair, just & reasonable to impose duty |
negligence |
Chandler v. Cape - specific intervention by parent/// parallel DoC b/w parent & subsidiary employees and subsidiary & its employees -----------assumption of responsibility by the parent over health and safety policy at subsidiary created special relationship b/w employee and parent, giving rise to DoC. Damages payable |
Okpabi v Royal Dutch Shell (2021) - courts seemed to move away from Chandler, now holding parent liable for tort of misfeasance (SUFFICIENT intervention by parent in subsidiary's operations) |
reinforces position set out in Vedanta v. Lungowe regarding the flexibility of the English courts' jurisdiction over parent company liability claims |
Lubbe v. Cape - tortious liability applicable on non-employee victims too (Lungowe v. Vedanta) |
AAA v. Unilever - complete parent's control over subsidiary not required (like that in agency req.). Even advice given will suffice |
economic loss due to negligent misstaement |
D or employee of company PERSONALLY be liable only if assumption of responsibility to create special relationship exists (*William v. NLHF |
if tort of deceit involved, liability will flow to D or employee (SCB v. Pakistan NSC) (Barclay v. Waypharm) |
