SLP - Grade: A1 PDF

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Introduction: Forde and Kennedy notes that “a registered company is an artificial device by which rights, powers, privileges and liabilities may be attributed to a fictional entity equated for many purposes to a natural person”. Courtney adds that there are very rational and sensible reasons for set...

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Introduction: Forde and Kennedy notes that “a registered company is an artificial device by which rights, powers, privileges and liabilities may be attributed to a fictional entity equated for many purposes to a natural person”. Courtney adds that there are very rational and sensible reasons for setting up a company. Incorporation is the process of forming and registering a company. Case Law:  Salomon v Salomon & Co Ltd [1897] was born out of case law and not the Companies Act. It states that a company is a separate legal entity and thus a juristic "person" in the eyes of the law. Since a company is treated as a Separate Legal Personality, the metaphor of “corporate veil” separating the members of the company from the corporate body has arisen.  The case of Salomon vs Salomon to become legalised was fought with the court of appeal (Lopez LJ) holding that the company was a wholly unwarranted perversion of the companies’ legislation and ”to legalise such a transaction would be a scandal”.  SVS determined the direction of modern company law and the nature of private limited companies.  Held in Ireland too in Sweeney v Duggan, held individual’s cannot be held liable for the company’s wrong-doing.  Lee v Lee’s Air Farming Ltd. – ruled the director and the company are separate legal persons.  Quigley Meats v Hurley – ruled individual’s aren’t liable for the debt of the company.  In the landmark English Court of Appeal case Adams v Cape Industries plc, the case law on Salomon was subject to a complete review. It was held that the court is not free to disregard the principles of Salomon v A. Salomon & Co Ltd merely because the justice so requires. Disregarding SLP: 1. A fraudulent purpose or to avoid a pre-existing legal obligation  Keane notes that it is clear from the Salomon judgment that if Salomon had been using the corporate identity for a fraudulent purpose, the outcome of the case might have been different.  Cummins v Stewart [1911] 1 IR 236 – ruled defendant was liable to pay the royalties to the plaintiff as it was initially carried out illegally. Co cannot be set up for a fraudulent purpose (to avoid legal obligations under a licence agreement).  Gallagher notes that where a company is set up as a strategic move such as to avoid higher tax levels etc., that does not allow the courts to set aside the SLP, as there is nothing inherently wrong being done by the company.  EG: Roundabout Limited v Beirne- company was set up as a strategic move and not set up fraudulently, so courts did not set aside SLP.

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Thus, using legal loopholes to an advantage is permissible (unless there is something inherently wrong with what is being done)

2. Agency: where one company is being controlled by the other as a matter of law  If the courts find that a subsidiary company is acting as an agent of the holding company, then their identities are combined and they are treated as one (thus disregarding SLP)  Not many cases on this area & the cases which exist are not convincing in their reasoning  Smith Stone & Knight v Birmingham Corporation [1939] 4 All ER 116 - The plaintiff wanted to be treated as one with its subsidiary as it would entitle both of them to compensation under the CPO. In this case, Atkinson J created a list of six factors which must be taken into account to identify if the company is a agent of the parent.  Thuiller notes that these factors are not satisfying, and Courtney says that they concentrate too much on control.  Firestone Tyre & Public Company v Llewellin also shows the consequences of agency. 3. When a group of companies are acting as a single economic entity (SEE)  Gallagher notes SEE is when SLP is disregarded because justice requires that a number of companies be treated as one.  Following the case of DHN Food Distributors Ltd v Tower Hamlet Bridge Borough Council in the UK, Power Supermarkets Ltd v Crumlin Investments Ltd and another was held in Ireland - Costello J held that Dunnes Stores (Crumlin) Ltd were bound by the restrictive covenant even though they were not a party to it  Dunnes Stores Group and Dunnes Stores (Crumlin) Ltd were viewed as one  Powers Supermarket Ltd could restrain Dunnes Stores (Crumlin) Ltd from trading as a grocery shop.  In Adams v Cape – this rule was disregarded in the UK, however it is still valid in Ireland as recently seen in the case of Fyffes v DCC Plc. Conclusion: Salomon and Salomon was clearly a very important case in company law and shaped the way modern companies have been created. However, there are reasons the courts will lift the veil of incorporation. That is in fraud, agency and SEE. Courtney suggests the supreme court is keen to relegate the SEE when exceptions are seen in Salomon v Salomon. SLP is generally applied provided there is no fraud or agency. the problem with the agency aspect is that the idea of justice is very difficult to define and could have taken the law down the road of being improper.

Therefore, the courts don’t easily lift the corporate veil and have restricted the idea of justice to a narrow interpretation in respect of SLP....