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[10] See Gas Lightning Improvement Co Ltd v IRC [1923] AC 723; Macaura v. Northern Assurance Co Ltd [1925] AC 619; Lee v. Lee`s Air Farming Ltd [1961] AC 12; Tunstall v. Steigman [1962] 2 All ER 417; Henry Brown & Sons v. Smith [1964] 2 Lloyds List 476; Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627; Ascot Investments Pty Ltd v. Harper (1981) 51 ALJR 233; and Alan Bond and Ors v. Australian Broadcasting Tribunal (1989) 89 ALR 185. It was assumed that this principle also applied to separate companies within a group. See Walker/Wimborne (1976) 137 CLR 1; Industrial Equity Ltd v. Blackburn (1977) 137 CLR 567; and Pioneer Concrete Services Ltd v.
Yelnah Pty Ltd (1987) 5 CCLA 467. Solomon`s Principle has been around for over 100 years and has shaped UK company law. According to Petrodel, it is clear that this principle is ignored or disregarded by a court only in well-defined circumstances. In most cases where the structure of the business is used to obscure reality, the court will only establish the actual facts to make a decision. This decision may be made on the basis of established legal principles such as probation or guardianship. However, this should not be confused with the court breaking the veil or ignoring the basic principle. In these cases, it is rather a question of affirming the doctrine of distinct legal personality, since the application of such principles requires two or more different legal persons. The principle was later confirmed in many different contexts.
In Macaura v. Northern Assurance [1925] A.C. 619, Mr. Macaura was the sole owner and controller of a business, but insured the company`s timber in his own name. Following a fire, Northern Insurance refused to pay Mr. Macaura because he did not own the wood. It was established in the House of Lords that Mr. Macaura had no legal or equitable interest in the ownership of the company, as it was a separate legal entity, although it suffered economically from its destruction. In Lee v. Lee`s Air Farming [1961] A.C. 12, it was found that the wife of a deceased owner of a business was entitled to compensation under the Workers` Compensation Act, 1922 because her husband was an employee of that business.
Lord Morris found: “ A man who acts in one capacity may enter into a contract with himself in another capacity. The company and the deceased were separate legal persons.“ [3] In Salomon v. A. Salomon and Company [1897] A.C. 22, the House of Lords established the principle of separate legal personality, which has been the starting point for any discussion of the subject since then. In the decades since Salomon, various exceptional circumstances in England and elsewhere (including Ireland) have been described by the legislature and the judiciary, in which courts may legitimately ignore the separate legal personality of a company, for example where crimes or fraud have been committed. Whether the same decision would be made if the same facts were taken into account in the modern legal environment is therefore the subject of much debate, given the decisions of the House of Lords in Pepper v. Hart and Re Spectrum Plus Ltd and the Privy Council in Attorney General of Belize v. Belize Telecom Ltd, which require a resolute approach to the interpretation of legislation. In 2013, there was a systematic review of these powers in Prest v.
Petrodel Resources Ltd[8] and Lord Sumption distinguished between cases where the corporate veil had actually been breached and situations where the company was essentially an agent for a perpetrator or held trust property. [9] So what is limited liability? Limited liability can be defined as a legal structure of an organization or corporation where a business loss does not exceed the amount invested in the organization. This essentially means that the private assets of the directors/shareholders of the company are safe in the event of bankruptcy of the company. Although Lady Hale and Lord Mance were less willing than Lord Sumption to draw sharp distinctions between cases of concealment or circumvention, or to exclude all possible future situations, Petrodel brought much-needed limits and clarity to the doctrine of breaking the corporate veil. [10] In fact, Lord Walker explained that this was not a doctrine at all, but simply a label used to describe the various cases in which the court had ignored or exempted the principle of distinct personality. Petrodel may signal a more conservative use of the term by the courts in the future. Corporate personality is considered the most fundamental principle in corporate law. It forms the pedestal on which the company is seen as a separate entity from the shareholders who sign its memorandum.
When a corporation is incorporated, it is treated as a „legal entity“ separate from its shareholders, project proponents, directors, members and employees; And the concept of the corporate veil separating these parts of society emerged. The issue of „lifting the corporate veil“ has been dealt with by courts and commentators for many years, and there are cases where the courts have denied the strict application of this doctrine. Either the limited liability company was a legal person or it was not. If so, the company belonged to him and not to Mr. Solomon, who is often referred to as Salomon. Otherwise, there was no one and nothing at all to be an agent; And it is impossible to say at the same time that there is a company and not. In all the above-mentioned cases, and in several other decisions of different jurisdictions, the principle that, once registered, the company acquires a legal personality separate from the persons who create or invest in the company has been clearly established. This principle has laid a solid foundation for the development of modern corporate law, based on the doctrine of limited liability. In this respect, Salomon v. Salomon & Co. Ltd was significant. Furthermore, nothing in company law prevents a person from agreeing to a company as his representative.
This makes that person responsible for what that company does within the agency. As stated in Salomon, the fact that a person is a member of the corporation does not make the corporation the representative of that person if there is no concrete intention to establish an agency relationship. In Smith, Stone & Knight Ltd v. Birmingham Corporation [1939] 4 All ER 116, it was found that a parent company that had established a wholly-owned subsidiary that theoretically operated a recovered paper business was entitled to compensation for the compulsory acquisition of the land on which the business was operated. Indeed, the parent company never officially transferred ownership of the recovered paper company to that subsidiary and retained ownership of the land on which the company operated. This case differs considerably from Salomon in that Mr. Salomon has formally transferred the business to A Salomon and Co Ltd. On the other hand, the activity carried out by the subsidiary in the present case was never transferred to it and remained the property of its main shareholder. Given that an agency relationship requires two legally identifiable parties, rather than being an example of disregard for a company`s distinct visual personality, treating an entity as the representative of its controllers is in fact a complete affirmation of the principle. In the Petrodel case, the Supreme Court recognized a limited power to break the corporate veil and disregard a company`s distinct personality in well-defined circumstances. In his guiding judgment, Lord Sumption formulated the principle as a very narrow principle.
In fact, he noted that „most cases where the corporate veil was violated could have been decided for other reasons.“ [7] Lord Sumption distinguished between the principle of obfuscation and the principle of avoidance. For his rule, the first was „legally banal“ and did not involve piercing the veil, since in these cases, the courts did not ignore the „façade“, but looked behind it to discover the true facts. The second principle, however, was different. It existed so that a court could ignore the corporate veil when there was a lawsuit against the person who controlled it that existed regardless of the involvement of the company, and when that legal action was thwarted or thwarted through a corporation and its separate corporate personality.
