Hostname: page-component-76fb5796d-dfsvx Total loading time: 0 Render date: 2024-04-25T10:35:53.530Z Has data issue: false hasContentIssue false
  • English
  • Français

Lifting the Corporate Veil: A Reassessment of the Fraud Exception

Published online by Cambridge University Press:  16 January 2009

Jennifer Payne
Jennifer Payne
Affiliation:
Fellow of Robinson College, Cambridge. I would like to thank Professor Len Sealy for his comments on an earlier draft of this article. Any errors are, of course, entirely my own.
Get access

Extract

If students of company law know just one case, that case will be Salomon v. A. Salomon & Co. Ltd. which firmly established the English law principle that a company is a legal person entirely separate and distinct from the members ofthat company. It is trite law that a rather hefty veil is drawn between these two that can be lifted only in a limited number of circumstances that seem to fluctuate according to current judicial thinking. However, it “is well established that the courts will not allow the corporate form to be used for the purposes of fraud or as a device to evade a contractual or other legal obligation”, a principle which is referred to hereafter as the “fraud exception” to the Salomon principle.

Type
Shorter Articles
Information
The Cambridge Law Journal , Volume 56 , Issue 2 , July 1997 , pp. 284 - 290
Copyright
Copyright © Cambridge Law Journal and Contributors 1997

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1. [1897[ A.C. 22.

2. There has been a great deal of discussion as to the correct word to use in order to describe the process of bypassing the Salomon doctrine; see, for example, S. Ottolenghi, “From Peeping behind the Corporate Veil to Ignoring it Completely” (1990) 53 M.L.R. 338. Staughton, L.J. in Alias Maritime Co. SA v. Avalon Maritime Ltd. (No 1). [1991] 4Google Scholar All E.R. 769, 779 said “[t]o pierce the corporate veil is an expression that I would reserve for treating the rights or liabilities or activities of a company as the rights or liabilities or activities of its shareholders. To lift the corporate veil or look behind it, on the other hand, should mean to have regard to the shareholding in a company for some legal purpose.” [original emphasis] To be clear, in this article, the cases which involve the use of a company to evade legal obligations require the activities of the company (which continues to be recognised as a separate entity, see p. 289 below) to be ascribed to one or more of the shareholders of that company. Although the phrase “lifting the veil” will be used throughout, this process would be termed “piercing the veil” in Staughton L.J.'s assessment.

3. Gore-Browne on Companies, 44th ed., vol. 1,Google Scholar para. 1.3.1; and see Re Darby [1911] 1 K.B. 95.

4. It has been referred to in other ways by different commentators; for example, Professor Schmitthoff referred to it as the “abuse of the corporate form exception” in [1976] J.B.L. 605.

5. [1993] B.C.L.C. 480.

6. Adams v. Cape Industries pic [1990] Ch. 433, 536. This statement may be compared to Cumming-Bruce L.J.'s statement that “the court will use its powers to pierce the corporate veil if it is necessary to achieve justice”: Re a Company [1985] B.C.L.C. 333, 337–378.

7. [1996] 1 B.C.L.C. 428.

8. [1933] Ch. 935. This decision followed the judgment of Lindley L.J. in Smith v. Hancock [1894] 2 Ch. 377.

9. [1962] 1 W.L.R. 832.

10. [1933] Ch. 935, 936 (Lord Hanworth M.R.).

11. [1962] 1 W.L.R. 832, 836.

12. “Salomon in the Shadow” [1976] J.B.L. 305.

13. Ibid, alp. 311.

14. See p. 288 below.

15. [1989] 1 W.L.R. 149.

16. [1990] Ch. 433.

17. Ibid., at p. 539. This follows the judgment of Lord Keith of Kinkel in Woolfson v. Strathclyde Regional Council 1978 SLT 159, 161.

18. Ibid, at p. 542.

19. Ibid., at pp. 540–541.

20. Ibid., at p. 543.

21. See n. 3 above.

22. [1990] Ch. 433, 544.

23. See Whincup, “Inequitable Incorporation” (1981) 2 Company Lawyer 158.

24. E.g. Whincup, op. cit.

25. [1990] Ch. 433, 544 (Slade L.J.).

26. [1993] B.C.L.C. 480.

27. The judge in this case was undoubtedly heavily influenced in allowing the substitution of Breachwood Motors by the fact that Mr. Creasey was funded by the Legal Aid Board. He doubted very much whether, in view of the sums in issue, justice could be done for Mr. Creasey if Mr. Creasey were to be required to start fresh proceedings against Breachwood Motors.

28. [1933] Ch. 935.

29. [1962] 1 W.L.R. 832