Legal personality - lifting the veil - exam q PDF

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COMPANY – SEPARQTE PERSONALITY/LIFTING THE VEIL/ACTION IN TORT – PBM QGeneral Structure of the pbm q:- a. Lifting the veil b. Action in Tort (tortuous liability)PART A:General structure:With these characteristics: - Control holding company over its subsidiary: Same board/director and/or holding refu...

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COMPANY – SEPARQTE PERSONALITY/LIFTING THE VEIL/ACTION IN TORT – PBM Q General Structure of the pbm q:a. Lifting the veil b. Action in Tort (tortuous liability) PART A: General structure: Holding company

Subsidiary 1: - Created before subsidiary 2 - Get used to do smtg the holding company cannot do bcse of the agreement/c signed by subsidiary 2

Subsidiary 2: - Get sold with condition for holding company to not do a similar business as subsidiary 2/agreement restricting business of holding company

With these characteristics: - Control holding company over its subsidiary: Same board/director and/or holding refuse funding subsidiary 2 (=> financial control) - Date creation subsidiary 1 before subsidiary 2 / dt original purpose OR Holding company ---- Subsidiary // One of the 2 entity get used to do smtg the other one cannot do 1. Intro – def legal personality → Salomon V A Salomon & Co [1892] - ‘The company is at law a different person altogether from the subscriber of the memorandum (…). The company is not, in law, the agent of the subscribers or the trustee of them’ - The company has its own name, rights and liabilities: can sue/be sued, liable for its debts, can owns property and assets, can be party to contract, if agreed in the M&A can exist to perpetuity. - Strong principle, confirmed in: → Macaura V Nothern Assurance Co [1925] → Lee V Lee’s Air Farming [1961] → Barings Plc (inn liquidation) V Cooper [2002]: corporate personality applies to parents v subsidiary company (different that single economic principle). 2. Lifting the veil a) Def: Where the principle of separate legal personality has a potential of being abused perpetrate fraud, or used for another wrongdoing, the shareholders, when involved in creating the situation, can be held liable. => When veil should be lifted? b)

Adams V Cape Industry Plc [1990] Asbestos case. Clarify and bring more certainty to be law, never been overruled i)

Not just ‘in the interest of justice’ => end of the interventionism years, leading to cases such as LittleWoods Mails Order Store V IRC or Re a Company (CA)

ii) Single economic principle can be used only when interpreting a document.  DNH Food Distributor, Lord Denning (OVERRULED) ‘this group is virtually the same

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partnership in which all the three companies are partners. They should not be treated separately so as to be defeated on technical point’ Consider parent/subsidiary as one personality. Samengo – Turner: interpretation EU regulation Beckett Investment Management Group Ltd

iii) When company is used a mere façade/sham  Gilford Motor Company Ltd  Jones V Lipman: ‘the defendant company is the creature of the first defendant, a device and a

sham, a mask he holds behore his face in an attempt to avoid recognition by the eye of equity’ iv) Agency principle: When subsidiary company act as an agent of the holding (like sign in hi name,

etc?) – see control section c) Prest V Petrodel Ressources Ltd [2013]

- THE AUTHORITY, bring further precision to Adams V Cape, narrowed the utilisation of lifting the veil. i)

Mere sham can only be utilised when there is an ‘evasion of pre-existing obligation’ = Evasion principle. Lord Sumption para 35:  ‘when a person is under an existing obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrated by interposing a company under his control. The court may then pierce the veil for the purpose of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality’ o Person is under an existing legal obligation/liability/legal restriction o Deliberately evades from this obligation by interposing a company under his control o => court will lift the veil for the only purpose of depriving him of the advantage he would have otherwise obtained by the company’s separate legal personality  Gilford V Motor stated as an example  Ben Hashem (CA) – stating those principle too but was only a CA’s case  Evasion ≠t concealment principle: o Concealment principle: Where a company conceals ones actions but the court can see through this to get the truth of a person’s behaviour. : ‘ It is that the interposition of a company or perhaps several companies so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming that their identity is legally relevant. In these cases, the court is not disregarding the “facade”, but only looking behind it to discover the facts which the corporate structure is concealing’ - Lord Sumption para 28.

ii) How to determine the level of control?  Prest V Petrodel Ressources Ltd: no need to have been created for the purpose of escaping legal obligation, it’s enough to be used like this now  Clegg V Pache: same board => + likely to be an alter-ego  Lennard Carrying Co Ltd – minds controlling holdings and subsidiary was the same bcse of the connecting link btw the mutual company  Agency principle iii) Prest V Petrodel Resources Ltd: lifting the veil will be used as a last resort, often alternative are

more likely to be found in tort, trust or family law

PART B – ALTERNATIVE ROUTE TO LIFTING THE VEIL Situation 1: An employee/neighbour/3rd party injured because of the negligence of the subsidiary. Ask whether the holding is responsible + what to do to reduce chance to be responsible. Does the holding own a duty to care to prevent the subsidiary from injuring employee/neighbour/3rd party? 1. Chandler V Cape Plc [2012], 4 conditions to validate the claim - Did the parent acted in a manner that created a direct duty to the subsidiary company’s employee? 1. parent operate in the same industry as the subsidiary 2. parent have same level of knowledge about health and safety than subsidiary 3. parent knew/ought to have knew that the subsidiary action was unsafe 4. subsidiary/employee relied on parent to safeguard employee safety/health (for instance need funding from the parent to ensure safety standard) → Lungowe V Vedenta Resources Plc 2017 – extended claim to neighbour and 3 rd party even if ‘ more likely to succeed’ when claim from an employee. 2. However, narrowed by 3 cases: → Thompson V Renwick Group Ltd 2014 + Okpabi Royal Dutch Shell Plc: - pure holding company – that are merely holding share, carrying no business or not engaged themselves in the industry - will not be liable because: - to validate condition 2 Chandler, need a high level of knowledge, based on fact → AAA V Unilever Plc [2018] – narrowed condition 1 Chandler, to be validate need: - parent had in substance taken the management of the subsidiary’s activity which caused the injury OR - Parent had taken over the management of the particular activity of the subsidiary, which caused the injury. Situation 2: Personal liability – ind. personally liable despite acting on behalf of the company Negligent misstatements - Williams V Natural Lift Health Food Ltd [1998] 1. Assumption of personal responsibility (ex: ‘I personally promise’) 2. Special relationship between claimant and person making statement (director) – show reliance by the claimant → MCA Records Inc – court took an even more relaxed approach Action in fraudulent misrep’ – if tort is deceipt (suggest intention), claimant + likely to find director liable → Rothen [2002], Standard Chartered Bank [2003] Situation 3: for liquidation/winding up – personal liability leading to contribute assets company - S213 Insolvency Act 1986 – fraudulent trading - show intention of fraud – court discretion - When winding up it appears that business of the company has been carried on with the intent to defraud creditors of the company (1), or creditor of any person (2), or fraudulent purpose (3) Court can declare any person who were knowingly carrying the business in this manner liable to make contribution to company’s asset. But Fraud hard to prove, need evidence of real dishonesty → Re Patrick & Lyon - S214 Insolvency Act 1986 – wrongful trading – show negligent behaviour – court discretion - Director knew/ought to have known that there was no reasonable prospect that the company would avoid going into liquidation but still continued to trade (=> causing more damage) → Re Produce Marketing Consortium Ltd (No.2) 1989 (trade for 7y)

Situation 4: Vicarious liability...