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Sealy & Worthington's Text, Cases, and Materials in Company Law

Sealy & Worthington's Text, Cases, and Materials in Company Law (12th edn)

Sarah Worthington and Sinéad Agnew
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date: 29 January 2023

p. 342. Corporate Personality and Limited Liabilityfree

p. 342. Corporate Personality and Limited Liabilityfree

  • Sarah WorthingtonSarah WorthingtonDowning Professor of the Laws of England and Fellow of Trinity College University of Cambridge Academic Member, South Square, Gray’s Inn
  •  and Sinéad AgnewSinéad AgnewCatherine Seville Assistant Professor in Law and Fellow of Newnham College University of Cambridge Associate Member of Serle Court, Lincoln’s Inn


This chapter discusses: the company as a separate legal person; the limited liability of members; the meaning and the processes of ‘piercing the corporate veil’; statutory piercing of the corporate veil; limits to the idea of a company as a ‘person’ and particular illustrations of a company’s separate personality.

General issues

We saw in the previous chapter that the separate legal personality of a company and the limited liability of its members are two pillars on which much of company law and corporate practice rests. Both of these ideas are examined in more detail here.1

The most important legal feature of a company is that it is a legal person in its own right, separate from the legal persons that are its members (or shareholders) and its directors. It is important to understand exactly what this means and what consequences inevitably follow from it. We typically use the word ‘person’ to refer to an individual human being, but in law the word has a more technical meaning: ‘a subject of rights and duties’.2 In this sense it is possible to speak of a corporation as a ‘person’ and recognise its separate ‘personality’.

p. 35To say that a company is a legal person suggests that it can be subjected to legal liabilities and entitled to advance legal claims in own name, that it can own property, enter into contracts, hold legal rights and commit legal wrongs, all as its own person. This is typically precisely what the shareholders who incorporate their business want: they want the company to run the business, and the company to carry the associated liabilities and have its assets at risk should the business suffer a downturn; they do not want their own assets at risk. This is what we mean by ‘limited liability’ for the shareholders. This idea of asset partitioning between the company and its shareholders is important.3 In this way, the shareholders are insulated from corporate losses, but will benefit from corporate successes: should the business grow, the shareholders will receive increased dividends and enjoy enhanced share values; but should the business fail, the losses are the company’s.

Third parties dealing with the business are usually equally keen on the corporate form, if only for ease of monitoring. Companies are required to make a good deal of financial information publicly available, and this provides useful (if only partial) information on the company’s standing. Certainly it is easier to monitor a company than to monitor all the various individuals who might be associated in some way with running the company’s business.

But sometimes this status quo looks less attractive, and the paper tiger of a company with its own legal personality is seen as frustrating. The outsiders want to ignore the corporate entity—which is invisible anyway—and instead claim access to the property and legal rights of those standing behind the company pulling the strings, typically the company’s shareholders. This was precisely the issue in perhaps the most famous case in all of company law, Salomon v A Salomon & Co Ltd [1897] AC 22 (House of Lords) [2.02]. Salomon was a bootmaker who operated initially as a sole trader, and later converted the business to one run by a company. When the business suffered a downturn and the company was unable to pay its debts, the company’s creditors sought to impose liability on Mr Salomon himself, the man behind the company as its majority shareholder. The creditors’ claims succeeded in the lower courts but failed before the House of Lords. This is the case which settled—very firmly—the idea that a company is an independent legal person, separate from its shareholders, even shareholders who wield complete control over the company’s activities.

But the creditors’ failure in this case, now well over 100 years ago, did not stop other claimants seeking to achieve the same ends. The stakes are often high. The cases extracted in this chapter include examples of outsiders suing in negligence for the harm caused by asbestosis, making their claims against the wealthy holding company (ie the rich corporate shareholder) rather than the undercapitalised subsidiary whose negligent actions caused the harm.

In these sorts of cases, the claimants invariably want to look to the person (human or corporate) behind the company and assert claims (either in contract or in tort) against those individuals which seem to involve ignoring the corporate intermediary standing between the two parties; as metaphor would have it, they want to ‘pierce the corporate veil’: that is, ignore the corporate form, and go behind it (behind its veil) to the individuals—human or corporate—who are the shareholders. The law in this area was until very recently exceptionally messy, and seemingly impossible to rationalise. In 2013, however, the p. 36Supreme Court took the opportunity to review the jurisdiction in Prest v Petrodel Resources Ltd [2013] UKSC 34 [2.12].

Although the judges deciding Prest v Petrodel Resources Ltd did not deny the existence of the doctrine of ‘piercing the veil’, they came as close as possible to doing so. Despite a good number of older cases using the terminology of ‘piercing the veil’, Lord Neuberger PSC remarked that ‘there is not a single instance in this jurisdiction where the doctrine has been invoked properly and successfully’ ([64]), and he suggested that orthodox legal analysis, respecting the corporate form, would invariably deliver the result that was warranted. This could be done by paying proper attention to all the possible relationships a company (as a separate entity) might have with its shareholders and with other parties. In the right circumstances these relationships could suffice to make those shareholders or other parties the subject of legal claims. Note that these claims would then be made without ignoring the corporate form; indeed, the existence of the company would typically be essential in establishing the necessary relationship on which litigation was based.

Because of Prest v Petrodel Resources Ltd [2.12], the analysis underpinning this area of the law can be explained in a much simpler and more intelligible way than was previously possible. There are three broad aspects of the law to be addressed: the consequences of separate legal personality; the idea of ‘piercing the corporate veil’; and the various ways of connecting the company with other parties, particularly the company’s shareholders, so that those other parties can be made liable in appropriate circumstances. Each of those aspects is considered in turn.

In all of this, two cases are particularly important: Salomon v A Salomon & Co Ltd [2.02] and Prest v Petrodel Resources Ltd [2.12]. They deserve serious attention and are extracted at length here. Together they provide the building blocks on which separate legal personality and its various consequences are built. Other cases provide illustration and guidance on the sometimes dramatic consequences of separate legal personality.

Given the approach now mandated by Prest v Petrodel Resources, a good number of the older cases in this area must be treated with caution. Many of the cases appearing in earlier editions of this book have been culled. Of the ones which remain, it is important to keep firmly in mind the idea that these older cases often use the terminology ‘piercing the corporate veil’ when all they mean is that, in the circumstances, the company’s members can be made liable to third parties. This may often be done on perfectly orthodox legal grounds, without in any way ignoring the company’s corporate personality. By contrast, the Supreme Court in Prest v Petrodel Resources confines the expression to circumstances where the separate legal personality of the company is ignored. As Lord Neuberger noted, even in the cases where this is what the judges say they are doing (two successful cases only, it seems: see ‘What counts as evasion?’, p 71), there are alternative, orthodox analyses to reach the same ends.

This limited meaning of ‘piercing the corporate veil’ is adopted here. Other less graphic terminology is used when corporate personality is not ignored at all, but the company’s members are nevertheless found to be liable to outsiders on the basis of calling into play other general legal principles: see ‘Connections between the company and other persons’, pp 78ff.

Separate corporate personality

The next extracts establish this foundational principle. Once that is done, we will examine the ramifications.

p. 37A company is a legal person separate and distinct from its members.

[2.01] Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 (Supreme Court)

The facts are immaterial at this stage, but see [2.12].


8. … The separate personality and property of a company is sometimes described as a fiction, and in a sense it is. But the fiction is the whole foundation of English company and insolvency law. As Robert Goff LJ once observed [in discussing ‘corporate groups’ as ‘economic units’], in this domain ‘we are concerned not with economics but with law. The distinction between the two is, in law, fundamental’: Bank of Tokyo Ltd v Karoon (Note) [1987] AC 45, 64. He could justly have added that it is not just legally but economically fundamental, since limited companies have been the principal unit of commercial life for more than a century. Their separate personality and property are the basis on which third parties are entitled to deal with them and commonly do deal with them.

[2.02] Salomon v A Salomon & Co Ltd [1897] AC 22 (House of Lords)

The facts and arguments appear from the speech of Lord Macnaghten.4 The extended detail is included here to illustrate a typical sole trader to small business incorporation. The process is instructive. Modern practice would be for the sole trader to be incorporated from the outset, although similar injections of assets and capital are usually needed from the incorporators/shareholders.

LORD MACNAGHTEN: Mr Salomon, who is now suing as a pauper, was a wealthy man in July 1892. He was a boot and shoe manufacturer trading on his own sole account under the firm of ‘A Salomon & Co’, in High Street, Whitechapel, where he had extensive warehouses and a large establishment. He had been in the trade over thirty years. He had lived in the same neighbourhood all along, and for many years past he had occupied the same premises. So far things had gone very well with him. Beginning with little or no capital, he had gradually built up a thriving business, and he was undoubtedly in good credit and repute.

It is impossible to say exactly what the value of the business was. But there was a substantial surplus of assets over liabilities. And it seems to me to be pretty clear that if Mr Salomon had been minded to dispose of his business in the market as a going concern he might fairly have counted upon retiring with at least £10,000 in his pocket.

Mr Salomon, however, did not want to part with the business. He had a wife and a family consisting of five sons and a daughter. Four of the sons were working with their father … But the sons were not partners: they were only servants. Not unnaturally, perhaps, they were dissatisfied with their position. They kept pressing their father to give them a share in the concern. ‘They troubled me,’ says Mr Salomon, ‘all the while.’ So at length Mr Salomon did what hundreds of others have done under similar circumstances. He turned his business into a limited company. He wanted, he says, to extend the business and make provision for his family. In those words, I think, he fairly describes the principal motives which influenced his action.

All the usual formalities were gone through; all the requirements of the Companies Act 1862 were duly observed. There was a contract with a trustee in the usual form for the sale of the p. 38business to a company about to be formed. There was a memorandum of association duly signed and registered, stating that the company was formed to carry that contract into effect, and fixing the capital of £40,000 in 40,000 shares of £1 each. There were articles of association providing the usual machinery for conducting the business. The first directors were to be nominated by the majority of the subscribers to the memorandum of association. The directors, when appointed, were authorised to exercise all such powers of the company as were not by statute or by the articles required to be exercised in general meeting; and there was express power to borrow on debentures, with the limitation that the borrowing was not to exceed £10,000 without the sanction of a general meeting.

The company was intended from the first to be a private company;[5] it remained a private company to the end. No prospectus was issued; no invitation to take shares was ever addressed to the public.

The subscribers to the memorandum were Mr Salomon, his wife, and five of his children who were grown up. The subscribers met and appointed Mr Salomon and his two elder sons directors. The directors then proceeded to carry out the proposed transfer. By an agreement dated 2 August 1892 the company adopted the preliminary contract, and in accordance with it the business was taken over by the company as from 1 June 1892. The price fixed by the contract was duly paid. The price on paper was extravagant. It amounted to over £39,000—a sum which represented the sanguine expectations of a fond owner rather than anything that can be called a businesslike or reasonable estimate of value. That, no doubt, is a circumstance which at first sight calls for observation; but when the facts of the case and the position of the parties are considered, it is difficult to see what bearing it has on the question before your Lordships. The purchase-money was paid in this way: as money came in, sums amounting in all to [£20,000][6] were paid to Mr Salomon, and then immediately returned to the company in exchange for fully paid shares. The sum of £10,000 was paid in debentures[7] for the like amount. The balance, with the exception of about £1,000 which Mr Salomon seems to have received and retained, went in discharge of the debts and liabilities of the business at the time of the transfer, which were thus entirely wiped off. In the result, therefore, Mr Salomon received for his business about £1,000 in cash, £10,000 in debentures, and half the nominal capital of the company in fully paid shares for what they were worth. No other shares were issued except the seven shares taken by the subscribers to the memorandum, who, of course, knew all the circumstances, and had therefore no ground for complaint on the score of overvaluation.

The company had a brief career: it fell upon evil days. Shortly after it started there seems to have come a period of great depression in the boot and shoe trade. There were strikes of workmen too; and in view of that danger contracts with public bodies, which were the principal source of Mr Salomon’s profit, were split up and divided between different firms. The attempts made to push the business on behalf of the new company crammed its warehouses with unsaleable stock. Mr Salomon seems to have done what he could: both he and his wife lent the company money; and then he got his debentures cancelled and reissued to a Mr Broderip, who advanced him £5,000, which he immediately handed over to the company on loan. The temporary relief only hastened ruin. Mr Broderip’s interest was not paid when it became due. He took proceedings at once and got a receiver appointed. Then, of course, came liquidation and a forced sale of the company’s assets. They realised enough to pay Mr Broderip, but not enough to pay the debentures in full: and the unsecured creditors were consequently left out in the cold.

p. 39In this state of things the liquidator met Mr Broderip’s claim by a counter-claim, to which he made Mr Salomon a defendant. He disputed the validity of the debentures on the ground of fraud. On the same ground he claimed rescission of the agreement for the transfer of the business, cancellation of the debentures, and repayment by Mr Salomon of the balance of the purchase-money. In the alternative, he claimed payment of £20,000 on Mr Salomon’s shares, alleging that nothing had been paid on them.

When the trial came on before Vaughan Williams J [Broderip v Salomon [1895] 2 Ch 323], the validity of Mr Broderip’s claim was admitted, and it was not disputed that the 20,000 shares were fully paid up. The case presented by the liquidator broke down completely; but the learned judge suggested that the company had a right of indemnity against Mr Salomon. The signatories of the memorandum of association were, he said, mere nominees of Mr Salomon—mere dummies. The company was Mr Salomon in another form. He used the name of the company as an alias. He employed the company as his agent; so the company, he thought, was entitled to indemnity against its principal. The counter-claim was accordingly amended to raise this point; and on the amendment being made the learned judge pronounced an order in accordance with the view he had expressed.

The order of the learned judge appears to me to be founded on a misconception of the scope and effect of the Companies Act 1862. In order to form a company limited by shares, the Act requires that a memorandum of association should be signed by seven persons, who are each to take one share at least. If those conditions are complied with, what can it matter whether the signatories are relations or strangers? There is nothing in the Act requiring that the subscribers to the memorandum should be independent or unconnected, or that they or any one of them should take a substantial interest in the undertaking, or that they should have a mind and will of their own, as one of the learned Lords Justices seems to think, or that there should be anything like a balance of power in the constitution of the company. In almost every company that is formed the statutory number is eked out by clerks or friends, who sign their names at the request of the promoter or promoters without intending to take any further part or interest in the matter.

When the memorandum is duly signed and registered, though there be only seven shares taken, the subscribers are a body corporate ‘capable forthwith’, to use the words of the enactment, ‘of exercising all the functions of an incorporated company’. Those are strong words. The company attains maturity on its birth. There is no period of minority—no interval of incapacity. I cannot understand how a body corporate thus made ‘capable’ by statute can lose its individuality by issuing the bulk of its capital to one person, whether he be a subscriber to the memorandum or not. The company is at law a different person altogether from the subscribers to the memorandum; and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by the Act. That is, I think, the declared intention of the enactment. If the view of the learned judge were sound, it would follow that no common law partnership could register as a company limited by shares without remaining subject to unlimited liability.

Mr Salomon appealed; but his appeal was dismissed with costs, though the appellate court did not entirely accept the view of the court below [Broderip v Salomon [1895] 2 Ch 323]. …

Among the principal reasons which induce persons to form private companies, as stated very clearly by Mr Palmer in his treatise on the subject, are the desire to avoid the risk of bankruptcy, and the increased facility afforded for borrowing money. By means of a private company, as Mr Palmer observes, a trade can be carried on with limited liability, and without exposing the persons interested in it in the event of failure to the harsh provisions of the bankruptcy law. A company, too, can raise money on debentures, which an ordinary trader cannot do. Any member of a company, acting in good faith, is as much entitled to take and hold the company’s debentures as any outside creditor. Every creditor is entitled to get and to hold the best security the law allows him to take.

p. 40If, however, the declaration of the Court of Appeal means that Mr Salomon acted fraudulently or dishonestly, I must say I can find nothing in the evidence to support such an imputation. The purpose for which Mr Salomon and the other subscribers to the memorandum were associated was ‘lawful’. The fact that Mr Salomon raised £5,000 for the company on debentures that belonged to him seems to me strong evidence of his good faith and of his confidence in the company. The unsecured creditors of A Salomon and Co Ltd may be entitled to sympathy, but they have only themselves to blame for their misfortunes. They trusted the company, I suppose, because they had long dealt with Mr Salomon, and he had always paid his way; but they had full notice that they were no longer dealing with an individual …

It has become the fashion to call companies of this class ‘one man companies’. That is a taking nickname, but it does not help one much in the way of argument. If it is intended to convey the meaning that a company which is under the absolute control of one person is not a company legally incorporated, although the requirements of the Act of 1862 may have been complied with, it is inaccurate and misleading: if it merely means that there is a predominant partner possessing an overwhelming influence and entitled practically to the whole of the profits, there is nothing in that that I can see contrary to the true intention of the Act of 1862, or against public policy, or detrimental to the interests of creditors. If the shares are fully paid up, it cannot matter whether they are in the hands of one or many. If the shares are not fully paid, it is as easy to gauge the solvency of an individual as to estimate the financial ability of a crowd.

One argument was addressed to your Lordships which ought perhaps to be noticed, although it was not the ground of decision in either of the courts below. It was argued that the agreement for the transfer of the business to the company ought to be set aside, because there was no independent board of directors, and the property was transferred at an overvalue. There are, it seems to me, two answers to that argument. In the first place, the directors did just what they were authorised to do by the memorandum of association. There was no fraud or misrepresentation, and there was nobody deceived. In the second place, the company have put it out of their power to restore the property which was transferred to them [ie the company could not make restitutio in integrum because the assets had already been sold in the liquidation of the company] …

LORD HALSBURY LC: My Lords, the important question in this case, I am not certain it is not the only question, is whether the respondent company was a company at all—whether in truth that artificial creation of the legislature had been validly constituted in this instance; and in order to determine that question it is necessary to look at what the statute itself has determined in that respect. I have no right to add to the requirements of the statute, or to take from the requirements thus enacted. The sole guide must be the statute itself.

Now, that there were seven actual living persons who held shares in the company has not been doubted. As to the proportionate amounts held by each I will deal presently; but it is important to observe that this first condition of the statute is satisfied, and it follows as a consequence that it would not be competent to any one—and certainly not to these persons themselves—to deny that they were shareholders.

I must pause here to point out that the statute enacts nothing as to the extent or degree of interest which may be held by each of the seven, or as to the proportion of interest or influence possessed by one or the majority of the shareholders over the others. One share is enough. Still less is it possible to contend that the motive of becoming shareholders or of making them shareholders is a field of inquiry which the statute itself recognises as legitimate. If they are shareholders, they are shareholders for all purposes; and even if the statute was silent as to the recognition of trusts, I should be prepared to hold that if six of them were [trustees for] the seventh, whatever might be their rights inter se, the statute would have made them shareholders to all intents and purposes with their respective rights and liabilities, and, dealing with them in their relation to the company, the only relations which I believe the law would sanction would be that they were corporators of the corporate body.

p. 41I am simply here dealing with the provisions of the statute, and it seems to me to be essential to the artificial creation that the law should recognise only that artificial existence—quite apart from the motives or conduct of individual corporators. In saying this, I do not at all mean to suggest that if it could be established that this provision of the statute to which I am adverting had not been complied with, you could not go behind the certificate of incorporation to show that a fraud had been committed upon the officer entrusted with the duty of giving the certificate, and that by some proceeding in the nature of scire facias you could not prove the fact that the company had no real legal existence. But short of such proof it seems to me impossible to dispute that once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself, and that the motives of those who took part in the promotion of the company are absolutely irrelevant in discussing what those rights and liabilities are.

I will for the sake of argument assume the proposition that the Court of Appeal lays down—that the formation of the company was a mere scheme to enable Aron Salomon to carry on business in the name of the company. I am wholly unable to follow the proposition that this was contrary to the true intent and meaning of the Companies Act. I can only find the true intent and meaning of the Act from the Act itself; and the Act appears to me to give a company a legal existence with, as I have said, rights and liabilities of its own, whatever may have been the ideas or schemes of those who brought it into existence.

I observe that the learned judge (Vaughan Williams J) held that the business was Mr Salomon’s business, and no one else’s, and that he chose to employ as agent a limited company; and he proceeded to argue that he was employing that limited company as agent, and that he was bound to indemnify that agent (the company). I confess it seems to me that that very learned judge becomes involved by this argument in a very singular contradiction. Either the limited company was a legal entity or it was not. If it was, the business belonged to it and not to Mr Salomon. If it was not, there was no person and no thing to be an agent at all; and it is impossible to say at the same time that there is a company and there is not.

Lindley LJ, on the other hand, affirms that there were seven members of the company; but he says it is manifest that six of them were members simply in order to enable the seventh himself to carry on business with limited liability. The object of the whole arrangement is to do the very thing which the legislature intended not to be done.[8]

It is obvious to inquire where that intention of the legislature manifested in the statute is. Even if we were at liberty to insert words to manifest that intention, I should have great difficulty in ascertaining what the exact intention thus imputed to the legislature is, or was. In this particular case it is the members of one family that represent all the shares; but if the supposed intention is not limited to so narrow a proposition as this, that the seven shareholders must not be members of one family, to what extent may influence or authority or intentional purchase of a majority among the shareholders be carried so as to bring it within the supposed prohibition? It is, of course, easy to say that it was contrary to the intention of the legislature—a proposition which, by reason of its generality, it is difficult to bring to the test; but when one seeks to put as an affirmative proposition what the thing is which the legislature has prohibited, there is, as it appears to me, an insuperable difficulty in the way of those who seek to insert by construction such a prohibition into the statute.

As one mode of testing the proposition, it would be pertinent to ask whether two or three, or indeed all seven, may constitute the whole of the shareholders? Whether they must be all independent of each other in the sense of each having an independent beneficial interest? And this is a question that cannot be answered by the reply that it is a matter of degree. If the legislature intended to prohibit something, you ought to know what that something is. All it has said is that one share is sufficient to constitute a shareholder, though the shares may be 100,000 in number. p. 42Where am I to get from the statute itself a limitation of that provision that that shareholder must be an independent and beneficially interested person? …

My Lords, the learned judges appear to me not to have been absolutely certain in their own minds whether to treat the company as a real thing or not. If it was a real thing; if it had a legal existence, and if consequently the law attributed to it certain rights and liabilities in its constitution as a company, it appears to me to follow as a consequence that it is impossible to deny the validity of the transactions into which it has entered. …

LORDS WATSON and DAVEY delivered concurring opinions. LORD MORRIS concurred.


1. List the various arguments advanced, and rejected, by the House of Lords in reaching their conclusion that Mr Salomon was not personally liable to the company’s creditors. What factors might have altered the conclusions reached? The answer to this question remains of vital importance. Modern analyses of the potential to look beyond the company itself to fund liabilities turn on these issues. See the later discussions in ‘Connections between the company and other persons’, pp 78ff.

2. To what do you think Lord Macnaghten was alluding when he said that the unsecured creditors of the company ‘had full notice that they were no longer dealing with an individual’? Was it fair to say that ‘they have only themselves to blame for their misfortunes’?

3. Was there a ‘very singular contradiction’ in the reasoning of Vaughan Williams J, as Lord Halsbury said? (See later on the circumstances in which a company will be held to be carrying on business as the agent of its principal shareholder: ‘Agency rules and third parties’, pp 79ff.)

4. Salomon’s case has been described as a ‘calamitous decision’ (O Kahn-Freund (1944) 7 MLR 54). Would you agree?


It makes no difference to the rule in Salomon that one member owns all or substantially all of the shares. Until 1992, when the Twelfth EU Directive on Single-Member Companies was implemented in the UK, it was necessary for a company to have at least two members. (The number in 1844 was originally set at 25, but this number was reduced to seven by the Companies Act 1862—the Act under which Mr Salomon’s company was registered—and later to two.) However, even under the former law it was possible for one person to own all the shares in a company beneficially and at the same time comply with the legislation by the simple expedient of vesting one or more shares in nominees who held the shares on his behalf and acted at his direction. In many other jurisdictions, the one person company has been recognised for a long time.

The consequences of separate legal personality

Having established that a company is an independent legal person, it is necessary to consider the consequences. We start with the specifics: that a company, as a legal person, can own property, enter into contracts, run its own business and sue and be sued on its own liabilities. Once these concrete ideas have been addressed, some consideration is given to broader generalities. For example, not every law applies to companies (eg companies cannot smoke, or drive a car), so how do we determine whether a particular legal rule, be p. 43it common law or statute, applies or not? Similarly, how is a company’s corporate nationality, residence, domicile, or indeed any other question of status, determined?

The company owns its own property

It should be unsurprising that a legal person can own and manage its own property. What typically does come as a surprise, however, is the necessary corollary that the shareholders then do not own this property. This is true even if the shareholders have ultimate control over the company, and can therefore determine, in a practical sense, what is done with the company’s property. This degree of control does not make the company’s property their property. The next two cases illustrate that to dramatic effect.

The property of a company belongs to it and not to its members. Neither a member nor a creditor of a company (unless a secured creditor) has an insurable interest in the assets of the company.

[2.03] Macaura v Northern Assurance Co [1925] AC 619 (House of Lords)

Macaura was the owner of the Killymoon estate in County Tyrone. He sold the whole of the timber on the estate to Irish Canadian Sawmills Ltd in consideration of the allotment to him of 42,000 fully paid £1 shares. Macaura and his nominees owned all the shares in the company, and Macaura was also an unsecured creditor of the company for an amount of £19,000. Following the sale of the timber, Macaura took out insurance policies in his own name with the respondent insurance company and others, covering the timber against fire. Two weeks later, almost all of the timber was destroyed in a fire. A claim brought by Macaura on the policies was dismissed on the ground that he had no insurable interest in the timber.

LORD SUMNER: My Lords, this appeal relates to an insurance on goods against loss by fire. It is clear that the appellant had no insurable interest in the timber described. It was not his. It belonged to the Irish Canadian Sawmills Ltd, of Skibbereen, co. Cork. He had no lien or security over it and, though it lay on his land by his permission, he had no responsibility to its owner for its safety, nor was it there under any contract that enabled him to hold it for his debt. He owned almost all the shares in the company, and the company owed him a good deal of money, but, neither as creditor nor as shareholder, could he insure the company’s assets. The debt was not exposed to fire nor were the shares, and the fact that he was virtually the company’s only creditor, while the timber was its only asset, seems to me to make no difference. He stood in no ‘legal or equitable relation to’ the timber at all. He had no ‘concern in’ the subject insured. His relation was to the company, not to its goods, and after the fire he was directly prejudiced by the paucity of the company’s assets, not by the fire. …

My Lords, I think this appeal fails.

LORDS BUCKMASTER and WRENBURY delivered concurring opinions.



1. Similarly in JJ Harrison (Properties) Ltd v Harrison [2001] EWCA Civ 1467, [2002] 1 BCLC 162 [7.41], the court stated that there is no rule of company law which constitutes a company the trustee of its property and its members or shareholders as beneficiaries of that trust.

2. In Prest v Petrodel Resources Ltd [2013] UKSC 34 [2.12], the divorcing parties were litigating over the division of an estate worth more than £50 million, but held by nominee companies. The Supreme Court confirmed that an order in respect of a company’s p. 44property (houses in London and overseas) could not be made in favour of the wife under the Matrimonial Causes Act 1973 s 24(1)(a), even though the husband owned 100 per cent of the shares and had complete control of the companies, unless there were legitimate grounds for ‘piercing the corporate veil’, which there were not here (see ‘“Piercing the corporate veil” vs separate legal personality’, pp 62ff). Mere ownership and control of the shares did not give the husband an interest in the houses. (Note, however, that the Supreme Court went on to find that the companies here could be regarded as holding the properties on trust for the husband, not by virtue of his status as sole shareholder and controller, but in the particular circumstances of this case. The Matrimonial Causes Act 1973 was thus applicable to enable orders to be made against the husband in relation to his beneficial interest in the houses.)

3. In Acatos & Hutcheson plc v Watson [1995] BCLC 446, A Ltd owned nearly 30 per cent of the shares in A & H plc but had no other assets. It would have been unlawful for A & H plc to acquire these shares because the ‘rule in Trevor v Whitworth’ [12.05] forbids a company to own shares in itself (the rule is not the same now, see ‘Redemptions and repurchases of shares’, pp 695ff). But Lightman J said that it was permissible for it to purchase all the shares in A Ltd, which of course meant that for all practical purposes it did, indirectly, own 30 per cent of its own shares. He added, however, that he might have thought it appropriate to pierce the veil and declare the transaction unlawful if A Ltd had been deliberately set up by A & H plc to acquire the shares as the first of two stages in a single scheme to evade the rule. See R Nolan, ‘The Veil Intact’ (1995) 16 Co Law 180.

The property of a company belongs to it and not to its members. Orders for disclosure of the company’s documents must be made against the company: the company’s members cannot generally be ordered to make such disclosure.

[2.04] Lonrho Ltd v Shell Petroleum Co Ltd [1980] QB 358 (Court of Appeal), affd [1980] 1 WLR 627 (House of Lords)

Lonrho sought an order for discovery (ie disclosure) of certain documents which it claimed (as the rules on disclosure required) were in the ‘power’ of two multinational oil companies, Shell and BP. These documents were held in Rhodesia (now Zimbabwe) and South Africa by local subsidiaries of Shell and BP, the subsidiaries being in each case wholly owned and controlled by Shell and BP. The application was refused.

SHAW LJ: This appeal poses as its principal issue a compact question as to the application and scope of RSC, Ord 24. When is a document in the power (as distinct from the possession or control) of a party to litigation so as to require him to disclose it if it relates to matters in question in that litigation?

The question seems elementary, but it poses for me at any rate a difficult philosophical problem as to what constitutes power, and I must confess to some vacillation as the arguments on either side proceeded. In the end I have come to the view that a document can be said to be in the power of a party for the purpose of disclosure only if, at the time and in the situation which obtains at the date of discovery, that party is, on the factual realities of the case virtually in possession (as with a one man company in relation to documents of the company) or otherwise has a present indefeasible legal right to demand possession from the person in whose possession or control it is at that time.

In the present case no such sure or direct route to acquiring possession existed or exists. The relationship between Shell and BP, on the one hand, and, on the other hand, the various subsidiaries, including those which are wholly owned by the two parent companies, may afford an p. 45ultimate but not an immediate or certain prospect of acquiring possession of documents which belong to and are in the possession and control for the time being of a subsidiary. The realisation of that prospect might involve the alteration of the articles of an unwilling or recalcitrant subsidiary followed by the removal of its then directors and their substitution by others more compliant. This would involve a radical transformation of the local scene within the subsidiary company. It would involve not merely raising the corporate veil, but committing an affront on the persona of the company itself. Even then, the directors who are substituted for the recalcitrant ones may find that there exists a conflict of duty so that they have no right to comply with the requirement. It would follow that the outcome of such a procedure would be at the best dubious …

There are no doubt situations, such as existed in B v B (Matrimonial Proceedings: Discovery)9 where on the established facts a company is so utterly subservient or subordinated to the will and the wishes of some other person (whether an individual or a parent company) that compliance with that other person’s demands can be regarded as assured. Each case must depend upon its own facts and also upon the nature, degree and context of the control …

LORD DENNING MR and BRANDON LJ delivered concurring judgments.

The company enters into its own contracts

The second feature associated with legal personality is that the company can enter into contracts on its own account. When it does, both the benefits and the liabilities under the contract are the company’s; they do not belong to the company’s controllers. As the next case makes plain, this is true even if the contract is between the company and its sole director and shareholder in circumstances where that individual must have acted for himself on one side of the transaction and for the company on the other side of the transaction.

A company may make a valid and effective contract with one of its members. It is possible for a person to be at the same time wholly in control of a company (as its principal shareholder or member and its sole director) and an employee of that company.

[2.05] Lee v Lee’s Air Farming Ltd [1961] AC 12 (Privy Council)

Lee, the appellant’s late husband, had formed the respondent company to carry on his business of spreading fertilisers on farmland (‘top-dressing’) from the air. He held 2,999 of its 3,000 shares, and was by its articles of association appointed sole governing director and (also pursuant to the articles) employed at a salary as its chief pilot. He was killed in an aircraft crash while flying for the company. If he was a ‘worker’ (defined as ‘any person who has entered into or works under a contract of service … with an employer … whether remunerated by wages, salary, or otherwise’) then his widow was entitled to be paid compensation by his employer under the Workers’ Compensation Act 1922 (NZ). The company, as required by statute, was insured against liability to pay its workers such compensation. Mrs Lee appealed successfully against the ruling of the Court of Appeal of New Zealand that Lee could not be a ‘worker’ when he was in effect also the employer.

The opinion of their Lordships was delivered by LORD MORRIS OF BORTH-Y-GEST: The Court of Appeal recognised that a director of a company may properly enter into a service agreement with his company, but they considered that, in the present case, inasmuch as the deceased was the p. 46governing director in whom was vested the full government and control of the company he could not also be a servant of the company. … [After discussing the facts of the case:] Their Lordships find it impossible to resist the conclusion that the active aerial operations were performed because the deceased was in some contractual relationship with the company. That relationship came about because the deceased as one legal person was willing to work for and to make a contract with the company which was another legal entity. A contractual relationship could only exist on the basis that there was consensus between two contracting parties. It was never suggested (nor in their Lordships’ view could it reasonably have been suggested) that the company was a sham or a mere simulacrum. It is well established that the mere fact that someone is a director of a company is no impediment to his entering into a contract to serve the company. If, then, it be accepted that the respondent company was a legal entity their Lordships see no reason to challenge the validity of any contractual obligations which were created between the company and the deceased …

Nor in their Lordships’ view were any contractual obligations invalidated by the circumstance that the deceased was sole governing director in whom was vested the full government and control of the company. Always assuming that the company was not a sham then the capacity of the company to make a contract with the deceased could not be impugned merely because the deceased was the agent of the company in its negotiation. … In their Lordships’ view it is a logical consequence of the decision in Salomon’s case [2.02] that one person may function in dual capacities. There is no reason, therefore, to deny the possibility of a contractual relationship being created as between the deceased and the company. … [I]‌t is [then] said that the deceased could not both be under the duty of giving orders and also be under the duty of obeying them. But this approach does not give effect to the circumstance that it would be the company and not the deceased that would be giving the orders. Control would remain with the company whoever might be the agent of the company to exercise it. The fact that so long as the deceased continued to be governing director, with amplitude of powers, it would be for him to act as the agent of the company to give the orders does not alter the fact that the company and the deceased were two separate and distinct legal persons. … Just as the company and the deceased were separate legal entities so as to permit of contractual relations being established between them, so also were they separate legal entities so as to enable the company to give an order to the deceased …


1. Although Lee’s case is undoubtedly correct as a ruling in company law, the question whether a person should be regarded as an ‘employee’ of a company which he can control as a director or major shareholder may not always be so clear-cut. Arguments that the employment contract is a sham may be raised (Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld [2009] EWCA Civ 280, although the contract was upheld); and claims for unfair or wrongful dismissal obviously require careful attention (Secretary of State for Trade and Industry v Bottrill [1999] ICR 592, CA).

2. There is one crucial limitation to actions by employee/managers against their companies. The wrongdoing employee/manager cannot insist that his or her own wrongful conduct, attributed to the company (see Chapter 3), then counts as the company’s wrong for which the company is then liable to the injured wrongdoer: see Brumder v Motornet Service and Repairs Ltd [3.27].

The company runs its own business

The third aspect of separate legal personality is that the company runs its own business. As in Salomon v A Salomon & Co Ltd [2.02], the fact that one person controls the company and every aspect of its business does not make that business the controller’s; it is still the company’s.

p. 47The fact that one person holds all, or substantially all, of the shares in a company does not, without more, make the company’s business that person’s business in the eyes of the law.

[2.06] Gramophone and Typewriter Co Ltd v Stanley [1908] 2 KB 89 (Court of Appeal)

All the shares in a German company (Deutsche Grammophon Aktiengesellschaft) were held by the appellant company, which was resident for tax purposes in England. The appellant was assessed for income tax not only upon the profits of the German company actually remitted to the English holding company in England, but also on a sum of £15,000 retained by the German company and transferred by it to a depreciation fund. The unremitted profits were taxable in England only if they were the profits or gains of a business ‘carried on’ by the English company. The Court of Appeal held they were not.

BUCKLEY LJ: The question is, I think, one of fact … The question of fact is whether the business in Germany is carried on by the appellant company. If it is, the [appellants] do not dispute that the Attorney-General [for the Inland Revenue] is right. If, on the contrary, the German business is not carried on by the English company, then equally the Attorney-General cannot dispute but that the English company is assessable only upon the dividends which it may receive upon its shares in the German company.

In order to succeed the Attorney-General must, I think, make out either, first, that the German company is a fiction, a sham, a simulacrum, and that in reality the English company, and not the German company, is carrying on the business; or, secondly, that the German company, if it is a real thing, is the agent of the English company. As regards the former of these, there are no facts at all to show that the German company is a pretence. … The only remaining question, therefore, is whether the German company is agent of the English company, whether the English company is really carrying on the business and is employing the German company to do so on its behalf. Upon this point the Attorney-General relies principally upon the fact that … the appellant company now holds all the shares of the German company. In my opinion this fact does not establish the relation of principal and agent between the English company and the German company. It is so familiar that it would be a waste of time to dwell upon the difference between the corporation and the aggregate of all the corporators. … [I]t cannot seriously be suggested that each time one person becomes the holder of all the shares an agency comes into existence which dies again when he parts with some of them.

Further it is urged that the English company, as owning all the shares, can control the German company in the sense that the German company must do all that the English company directs. In my opinion this again is a misapprehension. This court decided not long since, in Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [4.04] that even a resolution of a numerical majority at a general meeting of the company cannot impose its will upon the directors when the articles have confided to them the control of the company’s affairs. The directors are not servants to obey directions given by the shareholders as individuals; they are not agents appointed by and bound to serve the shareholders as their principals. They are persons who may by the regulations be entrusted with the control of the business, and if so entrusted they can be dispossessed from that control only by the statutory majority which can alter the articles. Directors are not, I think, bound to comply with the directions even of all the corporators acting as individuals. Of course the corporators have it in their power by proper resolutions, which would generally be special resolutions,[10] to remove directors who do not act as they desire, but this in no way answers the question here to be considered, which is whether the corporators are engaged in carrying on the p. 48business of the corporation. In my opinion they are not. To say that they are involves a complete confusion of ideas …

COZENS-HARDY MR and FLETCHER MOULTON LJ delivered concurring judgments.

The company sues and is sued on its own liabilities

Fourthly, again as a characteristic of legal personality, the company sues and is sued on its own legal rights and liabilities. This has two aspects. The first is procedural: it is the company which brings its own legal claims. This, we shall see, can cause some practical problems when the company’s controllers (typically the directors) disagree with the company’s members about whether the company should litigate.11 The second is substantive: the legal rights and obligations in issue belong to the company; in particular, the company carries its own liabilities, and members cannot generally be sued on these liabilities.12 This is the central legal principle in Salomon [2.02]. Yet contrary claims are often brought before the courts for the very practical reason that the company is unable to fund its admitted liabilities in circumstances where the members of the company have deep pockets and could do so. This may be because the company is a ‘one man company’ and the shareholder a rather wealthier individual (as in Salomon) or is an undercapitalised subsidiary of a far wealthier parent company.

The next case is an illustration. Prior to the Supreme Court decision in Prest v Petrodel Resources Ltd [2.12], this case was a leading authority on ‘piercing the corporate veil’. Its treatment now can be rather more succinct, but both the context and its key legal points remain important and instructive.

[2.07] Adams v Cape Industries plc [1990] Ch 433 (Court of Appeal)

Cape, an English company, headed a group which included many wholly owned subsidiaries. Some of these mined asbestos in South Africa and others marketed the asbestos in various countries, including the United States. Several hundred plaintiffs had been awarded damages by a Texas court for personal injuries suffered as a result of exposure to asbestos dust. The defendants included one of Cape’s subsidiaries, NAAC, which was based in Illinois. The Court of Appeal held that the judgment could not be enforced against the far wealthier English parent, Cape, rejecting arguments: (i) that Cape and the relevant subsidiaries should be treated as a single economic unit; (ii) that the subsidiaries were used as a ‘façade’ concealing the true facts; and (iii) that an agency relationship existed between Cape and NAAC.

The judgment of the court (SLADE, MUSTILL and RALPH GIBSON LJJ) was delivered by SLADE LJ:

The ‘single economic unit’ argument

There is no general principle that all companies in a group of companies are to be regarded as one. On the contrary, the fundamental principle is that ‘each company in a group of companies (a relatively modern concept) is a separate legal entity possessed of separate legal rights and liabilities’: The Albazero,13 per Roskill LJ.

p. 49It is thus indisputable that each of Cape, Capasco, NAAC and CPC were in law separate legal entities. Mr Morison did not go so far as to submit that the very fact of the parent-subsidiary relationship existing between Cape and NAAC rendered Cape or Capasco present in Illinois. Nevertheless, he submitted that the court will, in appropriate circumstances, ignore the distinction in law between members of a group of companies treating them as one, and that broadly speaking, it will do so whenever it considers that justice so demands. In support of this submission, he referred us to a number of authorities. …

We have some sympathy with Mr Morison’s submissions in this context. To the layman at least the distinction between the case where a company itself trades in a foreign country and the case where it trades in a foreign country through a subsidiary, whose activities it has full power to control, may seem a slender one …

It is [therefore] not surprising that in many cases … the wording of a particular statute or contract has been held to justify the treatment of parent and subsidiary as one unit, at least for some purposes. …

Mr Morison described the theme of all these cases as being that where legal technicalities would produce injustice in cases involving members of a group of companies, such technicalities should not be allowed to prevail. We do not think that the cases relied on go nearly so far as this. As Sir Godfray [counsel for Cape] submitted, save in cases which turn on the wording of particular statutes or contracts, the court is not free to disregard the principle of Salomon v A Salomon & Co Ltd [2.02] merely because it considers that justice so requires. Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities.

In deciding whether a company is present in a foreign country by a subsidiary, which is itself present in that country, the court is entitled, indeed bound, to investigate the relationship between the parent and the subsidiary. In particular, that relationship may be relevant in determining whether the subsidiary was acting as the parent’s agent and, if so, on what terms. However, there is no presumption of any such agency. There is no presumption that the subsidiary is the parent company’s alter ego. In the court below the judge refused an invitation to infer that there existed an agency agreement between Cape and NAAC comparable to that which had previously existed between Cape and Capasco and that refusal is not challenged on this appeal. If a company chooses to arrange the affairs of its group in such a way that the business carried on in a particular foreign country is the business of its subsidiary and not its own, it is, in our judgment, entitled to do so. Neither in this class of case nor in any other class of case is it open to this court to disregard the principle of Salomon v A Salomon & Co Ltd [2.02] merely because it considers it just so to do.

[His Lordship reviewed the evidence, and concluded that, although Cape was in a position to exercise overall control over the general policy of NAAC, this control did not extend to the subsidiary’s day-to-day running. The contention that the group was a ‘single economic unit’ was accordingly rejected.]

The ‘corporate veil’ point

Quite apart from cases where statute or contract permits a broad interpretation to be given to references to members of a group of companies, there is one well-recognised exception to the rule prohibiting the piercing of ‘the corporate veil’. … [That is where special circumstances exist indicating that the company is a mere façade concealing the true facts.] …

Mr Morison submitted that the court will lift the corporate veil where a defendant by the device of a corporate structure attempts to evade (i) limitations imposed on his conduct by law; (ii) such rights of relief against him as third parties already possess; and (iii) such rights of relief as third parties may in the future acquire. Assuming that the first and second of these three conditions will suffice in law to justify such a course, neither of them apply in the present case. It is not suggested that the arrangements involved any actual or potential illegality or were intended to p. 50deprive anyone of their existing rights. Whether or not such a course deserves moral approval, there was nothing illegal as such in Cape arranging its affairs (whether by the use of subsidiaries or otherwise) so as to attract the minimum publicity to its involvement in the sale of Cape asbestos in the United States of America. As to condition (iii), we do not accept as a matter of law that the court is entitled to lift the corporate veil as against a defendant company which is the member of a corporate group merely because the corporate structure has been used so as to ensure that the legal liability (if any) in respect of particular future activities of the group (and correspondingly the risk of enforcement of that liability) will fall on another member of the group rather than the defendant company. Whether or not this is desirable, the right to use a corporate structure in this manner is inherent in our corporate law. Mr Morison urged on us that the purpose of the operation was in substance that Cape would have the practical benefit of the group’s asbestos trade in the United States of America without the risks of tortious liability. This may be so. However, in our judgment, Cape was in law entitled to organise the group’s affairs in that manner and … to expect that the court would apply the principle of Salomon v A Salomon & Co Ltd [2.02] in the ordinary way. …

We reject the ‘corporate veil’ argument.

The ‘agency argument’

We now proceed to consider the agency argument in relation to NAAC on the footing, which we consider to be the correct one, that NAAC must for all relevant purposes be regarded as a legal entity separate from Cape.

[His Lordship reviewed the evidence and concluded:] Having regard to the legal principles stated earlier in this judgment, and looking at the facts of the case overall, our conclusion is that the judge was right to hold that the business carried on by NAAC was exclusively its own business, not the business of Cape … We see no sufficient grounds for disturbing this finding of fact.


The plaintiffs in Adams were tort victims. Some commentators argue that there is a stronger case for looking to the members or shareholders behind the corporate framework in such cases because the tort victims, unlike creditors with claims based in contract, were never in a position to negotiate or to take the risk of the company’s potential insolvency into account in settling the terms of their bargain. However, it is observed by others that all tort victims face this risk that their tortfeasor may be impecunious. Should the law adopt a different approach to corporate personality, or to the limited liability of members, in dealing with contract and tort claimants? (Note that the law could do either without ignoring the separate corporate person, although most of these early cases argued for ‘piercing [ie ignoring] the corporate veil’.)


1. In Yukong Line Ltd of Korea v Rendsburg Investments Corpn of Liberia [1998] 1 WLR 294 [7.18], Toulson J adopted a very similar line of reasoning where the question was whether the Salomon [2.02] principle should be disregarded so as to make Mr Ramvrias, the sole shareholder of the defendant company (Rendsburg), personally liable for damages for breach of a contract to charter a ship which had ostensibly been entered into by that company. He rejected an argument that the charterparty had in reality been entered into by Rendsburg as Ramvrias’s agent (indeed, to the contrary, the document had been signed by Ramvrias as Rendsburg’s agent), and also further arguments that the company was a ‘sham’ or, alternatively, that the corporate veil should be pierced in the interests of justice. (The real complaint was that Ramvrias had caused Rendsburg to transfer most of its funds to another of his companies so that it would not be in a position to meet any award p. 51of damages that might be made against it. But, as the judge observed, there were other ways in which these funds might be recouped—for example, in an action by Rendsburg’s liquidator for breach by Ramvrias of his duty as a director (note, not as a member): see ‘The functions, powers and duties of the liquidator’, pp 889ff. These recoveries would boost the company’s coffers, and that would benefit the company’s creditors. But Salomon [2.02] stood in the way of giving the creditor any direct remedy against Ramvrias.)

2. Also see Re Polly Peck International plc [1996] 2 All ER 433, where PPI, a holding company at the head of a large group, set up a specially incorporated overseas subsidiary, PPIF, in order to raise funds by a bond issue. All the funds received were on-loaned to PPI, and PPI guaranteed the subsidiary’s repayment obligations. PPIF had no separate management or bank account. The court refused to pierce the veil on ‘group trading’, ‘agency’ or ‘sham’ grounds so as to treat PPI as being in reality the borrower of the funds.

Corporate groups: do they warrant special treatment?

These and similar cases decided since Adams v Cape Industries [2.07] indicate that it is now very unlikely that the Salomon [2.02] principle will be ignored in a group context. On the other hand, as we will see later, ignoring Salomon is not always necessary in order to deliver the desired outcome: see ‘Connections between the company and other persons’, p 75.

Nevertheless, there is increasing interest—although perhaps more in other parts of the world than in the UK—in whether a holding company should be made liable for the debts of an insolvent subsidiary, or the ‘enterprise’ as a whole for the obligations of one of its members.

The problem is well summarised in the following extract from the judgment of Templeman LJ in Re Southard & Co Ltd [1979] 1 WLR 1198 at 1208, CA:

English company law possesses some curious features, which may generate curious results. A parent company may spawn a number of subsidiary companies, all controlled directly or indirectly by the shareholders of the parent company. If one of the subsidiary companies, to change the metaphor, turns out to be the runt of the litter and declines into insolvency to the dismay of its creditors, the parent company and the other subsidiary companies may prosper to the joy of the shareholders without any liability for the debts of the insolvent subsidiary. It is not surprising that, when a subsidiary company collapses, the unsecured creditors wish the finances of the company and its relationship with other members of the group to be narrowly examined, to ensure that no assets of the subsidiary company have leaked away, that no liabilities of the subsidiary company ought to be laid at the door of other members of the group, and that no indemnity from or right of action against any other company, or against any individual, is by some mischance overlooked.

The anxiety of the creditors will be increased where, as in the present case, all the assets of the subsidiary company are claimed by another member of the group in right of a debenture.

Generally speaking, English case law has adhered to the Salomon [2.02] principle in situations such as this and has not developed principles which would allow a court to ignore the separate personality of the companies concerned.14 This contrasts with attitudes abroad, where factors such as ‘domination’ and ‘undercapitalisation’ (or ‘thin incorporation’) have been relied on to build up a body of rules under which other companies in a group have been held liable to back the obligations of the ‘runt of the litter’. In New Zealand and Ireland, the Companies Acts have been amended so as to give the court a discretion to order that one company in a group should make a contribution to the assets p. 52of another which is in insolvent liquidation, or to order that the liquidations of two associated companies should proceed jointly, so that their assets and liabilities are pooled.15 The Cork Committee on Insolvency in its report (Cmnd 8558, 1982) did not suggest that this precedent should be followed in the UK, but did urge that the question be studied further. The Company Law Review (CLR) could have taken this opportunity in its Review, but instead it simply stated that it did not propose any reforms in this area.

By contrast, there are a variety of statutory provisions governing groups, and treating them as a ‘group’. For instance, the companies legislation has rules requiring the publication of consolidated accounts (Companies Act 2006 (CA 2006) ss 399ff); and the tax laws have rules dealing with such matters as claims for group relief in respect of corporation tax (see, eg, Corporation Tax Act 2010 ss 129ff). Employment legislation, for example in regard to redundancy payments, sometimes treats as continuous employment a succession of jobs with a number of associated companies, or, similarly, a succession of employers following a takeover or reorganisation. In all these statutes, the concepts of ‘group’ and ‘associated company’ will be formally defined for the purpose of the particular provision in question.

General recognition that the company is a legal person

Having considered the more familiar claims of legal persons—that is, to own property, enter into contracts, run a business and sue and be sued—we can consider a number of more subtle illustrations. It is the technique adopted by both statutes and the courts in determining particular aspects of corporate personality which are crucial, not simply the detail of the particular rule under examination.

The fact that a company is a legal person means that the general laws of the land apply to the company, although only so far as is appropriate (eg it is obvious that a company cannot marry, or drive a car,16 although it can do many other things of legal significance). It also means that the company has a place of residence and a domicile, and can be assigned a legal status for particular purposes (eg, in the next case extract, as an ‘enemy alien’).

Note that each of these conclusions will inevitably be based on assessments of relevant activities or decisions made by the company’s human agents and ‘attributed’ to the company as a legal person. The legal rules which govern this process of attribution are considered in Chapter 3, but the basic question which all these rules seek to answer is ‘Whose acts (or intentions or decisions or characteristics) count as the company’s acts (or intentions or decisions or characteristics) for this purpose?’

Presumption that the law applies to corporate persons as it does to human persons

The Interpretation Act 1978 s 5, and Sch 1, provides that in any Act, unless the contrary intention appears, ‘person’ includes a body of persons corporate or unincorporated. Those who draft legislation regularly make distinctions between the term ‘person’ (which includes a corporate body) and ‘individual’ (which does not). The use of each of these terms, respectively, in the Company Directors Disqualification Act 1986 and the Criminal Justice Act 1993 Pt V, means that a company can be the subject of a disqualification order prohibiting it from acting as a director, but not convicted of insider dealing.

p. 53There is a presumption that the word ‘person’ be construed as including a company, although the final analysis depends on the context.

[2.08] Pharmaceutical Society v London and Provincial Supply Association Ltd (1880) 5 App Cas 857 (House of Lords)

This case predates the Interpretation Act 1978 (above). Consider how the judges worked towards the same ends, and what problems might arise as a result.

The Pharmacy Act 1868 prohibited ‘any person’ from selling or keeping an open shop for retailing poisons unless such person was qualified and registered as a pharmaceutical chemist. The respondent company was prosecuted for an infringement of the Act. The sale of chemicals by the company was superintended by a registered chemist, who was a salaried employee and also a minority shareholder in the company. The House of Lords held that the company had not infringed the statute.

LORD BLACKBURN: I own I have no great doubt myself … that the word ‘person’ may very well include both a natural person, a human being, and an artificial person, a corporation. I think that in an Act of Parliament, unless there be something to the contrary, probably (but that I should not like to pledge myself to) it ought to be held to include both. I have equally no doubt that in common talk, the language of men not speaking technically, a ‘person’ does not include an artificial person, that is to say, a corporation. Nobody in common talk if he were asked, Who is the richest person in London, would answer, The London and North-Western Railway Co. The thing is absurd. It is plain that in common conversation and ordinary speech, ‘a person’ would mean a natural person: in technical language it may mean the artificial person: in which way it is used in any particular Act, must depend upon the context and the subject-matter. I do not think that the presumption that it does include an artificial person, a corporation, if that is the presumption, is at all a strong one. Circumstances, and indeed circumstances of a slight nature in the context, might shew in which way the word is to be construed in an Act of Parliament, whether it is to have the one meaning or the other …

But, my Lords, my conclusion, looking at this Act, is that it is clear to my mind that the word ‘person’ here is so used to show that it does not include a corporation, and that there is no object or intention of the statute which shows that it is requisite to extend the word to a sense which probably those who used it in legislation, were not thinking of at all. I do not think that the legislature was thinking of bodies corporate at all. Beginning with the preamble the Act says, ‘Whereas it is expedient for the safety of the public that persons keeping open shop for the retailing, dispensing, or compounding of poisons, and persons known as chemists and druggists, should possess a competent practical knowledge of their business’. Stopping there it is quite plain that those who used that language were not thinking of corporations. A corporation may in one sense, for all substantial purposes of protecting the public, possess a competent knowledge of its business, if it employs competent directors, managers, and so forth. But it cannot possibly have a competent knowledge in itself. The metaphysical entity, the legal ‘person’, the corporation, cannot possibly have a competent knowledge. Nor, I think, can a corporation be supposed to be a ‘person known as a chemist and druggist’ … A body corporate may keep an open shop, and no mischief is done, if … qualified persons perform or superintend the sale …


The protective purpose of this Act would be defeated if the Act did not somehow apply to companies operating chemists’ shops. It might be obvious that a company cannot be ‘qualified and registered as a pharmaceutical chemist’. But we would no longer insist that ‘The metaphysical entity, the legal “person”, the corporation, cannot possibly have a competent knowledge.’ Indeed, precisely the opposite now holds true: see the discussion in p. 54Chapter 3 and the very important case of Meridian Global Funds Management Asia Ltd v Securities Commission [3.01]. How should modern Acts be drafted to provide the necessary protection in the circumstances of the case above?


The preceding case concerned the interpretation of a statute, but the views of Lord Blackburn have also served as a guide in the construction of other documents, for example in Re Jeffcock’s Trust (1882) 51 LJ Ch 507, where a limited company was held to be a ‘person’ within the terms of a power to lease conferred by will. The courts have gone so far as to hold that a company is a ‘person of full age’ within the meaning of the Law of Property Act 1925 (Re Earl of Carnarvon’s Chesterfield Settled Estates [1927] 1 Ch 138), but have stopped short of holding that a company is capable of ‘exercising itself in the duties of piety and true religion’ (Rolloswin Investments Ltd v Chromolit Portugal Cutelarias e Produtos Metálicos SARL [1970] 1 WLR 912), or of being deemed a rogue and a vagabond (AG v Walkergate Press Ltd (1930) 142 LT 408: compare R v Registrar of Joint Stock Companies, ex p More [1.03]). The Scottish courts have ruled that a company is incapable of shame, and so cannot be guilty of ‘shameless conduct’: Dean v John Menzies (Holdings) Ltd 1981 SLT 50. But Lord Templeman held that a company has a ‘conscience’ (Winkworth v Edward Baron Development Co Ltd [7.17]). It also has a ‘reputation’ and so can sue in defamation: D and L Caterers Ltd and Jackson v D’Ajou [1945] KB 364, CA (allegation that company had procured supplies on the black market). It is entitled to protection from invasion of its privacy (R v Broadcasting Standards Commission, ex p BBC [2001] 1 BCLC 244, CA (secret filming of transactions in Dixons’ shops), but not to compensation for wrongful conviction on a criminal charge (R v Secretary of State for the Home Department, ex p Atlantic Commercial (UK) Ltd [1997] BCLC 692)). Interestingly, all these features of a company’s legal personality are part of an evolving landscape: contrast the views expressed by Blackstone, ‘Limits to the idea of a company as a “person”?’, p 61, several hundred years ago.

The Human Rights Act 1998 and companies

Many countries have a constitution or charter by which certain fundamental rights and freedoms are guaranteed, such as freedom of speech and religion, freedom to trade and do business, the privilege against self-incrimination and the right not to have property expropriated without compensation. Whether a company should enjoy such constitutional guarantees is often a question of great difficulty, and it is not surprising that courts in different jurisdictions have given conflicting rulings on what would appear to be much the same issue. The most obvious reason for such a discrepancy is likely to be the language of the relevant legislation: a charter of human rights, for example, is less likely to be construed so as to embrace corporate bodies than is a statement of constitutional freedoms. Differences in cultural or historical background may also play a part. But even where it is accepted that the freedoms and rights are to be accorded only to human beings, that is not necessarily the end of the matter. A court may be persuaded in some circumstances to look beyond the corporate entity (holding, eg, that interference with the right of a company to publish a newspaper is an infringement of the right to freedom of expression of the individuals concerned).17 Alternatively, it may accord standing to a company to challenge legislation as unconstitutional even though the company itself is not directly affected by it: thus, in p. 55R v Big M Drug Mart Ltd (1985) 18 DLR (4th) 321, the Supreme Court of Canada allowed such a challenge by a company, on the ground that the statute in question infringed the guarantee of freedom of religion and conscience in s 2(a) of the Canadian Charter of Rights and Freedoms, irrespective of any question whether a corporation can enjoy or exercise freedom of religion.

The enactment of the Human Rights Act 1998 (HRA 1998) stimulated interest in these issues in the UK. Although the title of the Act, and the Convention behind it, both refer to ‘human’ rights, some of its provisions expressly confer rights and freedoms on ‘legal’ (as distinct from ‘natural’) persons—for example, the right to property, the right to a fair trial in the determination of civil rights and the right to peaceful enjoyment of possessions. The European Court of Human Rights (ECtHR) has held in a number of cases that a body corporate has standing to institute proceedings complaining of a violation of the Convention. As a result of the principle of separate corporate personality, if a company’s Convention rights are infringed, no individual member of the entity is a victim of that breach. This means that no member has standing to apply to the ECtHR or bring proceedings under the HRA 1998 in pursuit of the company’s claims. The ECtHR has, however, held that a form of derivative claim on behalf of the company would be available where it is not possible for those responsible for the company’s litigation to make the application (Credit and Industrial Bank v Czech Republic [2003] ECHR 2003-XI).18

While it is plain that some parts of the Convention cannot apply to companies (eg the right to life, the prohibition of torture and the right to marry), others can quite readily do so (the right to a fair trial,19 no retrospective punishment for crimes, the right to freedom of expression20). One feature of the decisions of the ECtHR which is rather at odds with the current attitude of the domestic courts in the UK is a much greater willingness to pierce the corporate veil—for example, treating shareholders as the ‘victims’ of an act aimed at their company.

Nationality, domicile and residence

A company’s nationality is determined by its place of its registration (ie the place from which it derives its personality), and it retains that nationality throughout its existence: Kuenigl v Donnersmarck [1955] 1 QB 515.

A company is also capable of having a domicile. This is also the place of its registration, and it too is retained throughout the company’s existence.21 See Gasque v IRC [1940] 2 KB 80: ‘a company has a domicil—an English domicil if registered in England, and a Scottish domicil if registered in Scotland. The domicil of origin, or the domicil of birth, using with respect to a company a familiar metaphor, clings to it throughout its existence’.

By contrast, a company’s residence is determined more flexibly. The concept of a company’s ‘residence’ may be relevant for tax purposes and in other contexts, for example in regard to the place where documents may be served on it.

p. 56A company’s residence is where it ‘really keeps house and does its real business’; its ‘real business’ is carried on where the central management and control actually abides.22

[2.09] De Beers Consolidated Mines Ltd v Howe [1906] AC 455 (House of Lords)

The facts appear from the judgment.

LORD LOREBURN LC: Now, it is easy to ascertain where an individual resides, but when the inquiry relates to a company, which in a natural sense does not reside anywhere, some artificial test must be applied.

Mr Cohen propounded a test which had the merits of simplicity and certitude. He maintained that a company resides where it is registered, and nowhere else. If that be so, the appellant company must succeed, for it is registered in South Africa.

I cannot adopt Mr Cohen’s contention. In applying the conception of residence to a company, we ought, I think, to proceed as nearly as we can upon the analogy of an individual. A company cannot eat or sleep, but it can keep house and do business. We ought, therefore, to see where it really keeps house and does business. An individual may be of foreign nationality, and yet reside in the United Kingdom. So may a company. Otherwise it might have its chief seat of management and its centre of trading in England under the protection of English law, and yet escape the appropriate taxation by the simple expedient of being registered abroad and distributing its dividends abroad. The decision of Kelly CB and Huddleston B in the Calcutta Jute Mills Co Ltd v Nicholson23 and the Cesena Sulphur Co v Nicholson,24 now thirty years ago, involved the principle that a company resides for purposes of income tax where its real business is carried on. Those decisions have been acted upon ever since. I regard that as the true rule, and the real business is carried on where the central management and control actually abides. … This is a pure question of fact …

The case stated by the commissioners gives an elaborate explanation of the way in which this company carried on its business. The head office is formally at Kimberley, and the general meetings have always been held there. Also the profits have been made out of diamonds raised in South Africa and sold under annual contracts to a syndicate for delivery in South Africa upon terms of division of profits realised on resale between the company and the syndicate. And the annual contracts contain provisions for regulating the market in order to realise the best profits on resale. Further, some of the directors and life governors live in South Africa, and there are directors’ meetings at Kimberley as well as in London. But it is clearly established that the majority of directors and life governors live in England, that the directors’ meetings in London are the meetings where the real control is always exercised in practically all the important business of the company except the mining operations. London has always controlled the negotiation of the contracts with the diamond syndicates, has determined policy in the disposal of diamonds and other assets, the working and development of mines, the application of profits, and the appointment of directors. London has also always controlled matters that require to be determined by the majority of all the directors, which include all questions of expenditure except wages, materials, and such-like at the mines, and a limited sum which may he spent by the directors at Kimberley.

p. 57The commissioners, after sifting the evidence, arrived at the two following conclusions, viz: (1) That the trade or business of the appellant company constituted one trade or business, and was carried on and exercised by the appellant company within the United Kingdom at their London office. (2) That the head and seat and directing power of the affairs of the appellant company were at the office in London, from whence the chief operations of the company, both in the United Kingdom and elsewhere, were in fact controlled, managed and directed.

These conclusions of fact cannot be impugned, and it follows that this company was resident within the United Kingdom for purposes of income tax, and must be assessed on that footing. I think, therefore, that this appeal fails. …

LORD JAMES OF HEREFORD delivered a concurring opinion.



Notice that the current debates on the ‘effective’ tax rates paid by companies such as Google, Starbucks and Amazon are not illustrations of this approach, but of a quite different feature of modern companies. These multinational companies operate as ‘corporate groups’, with different companies in the group registered—and resident for tax purposes—in different jurisdictions. The objective with this sort of structure is to ensure that the profitable aspects of the business are located in low-tax jurisdictions.

Notice, too, that the approach adopted in England to these issues is not necessarily adopted elsewhere, and nor is it adopted for all purposes: see ‘The benefits and difficulties of harmonisation’, pp 15ff.

Status questions

The twin ideas that a company is a legal person, and that the general law is presumed to apply as far as is possible, are often not enough to answer difficult questions about how the law should apply. This is true even when the rules on nationality, residence and domicile are added into the mix. The problems arise under both the general law and statute. In every case, the real difficulty is the tension between treating the company as a separate legal person at law and, by contrast, dealing with the inherent reality that ‘behind the corporate veil’ lie human individuals with particular characteristics, identities and motivations. This inherent tension plagues a good deal of company law and can be the source of innumerable analytical difficulties if the problem is not addressed transparently. A number of these problems emerge in sharp focus in Chapter 3. The examples below are also illustrations, but in a different context.

The key questions in every case are these: (i) should this law (common law or statute) apply to companies at all? And, if it does apply, (ii) whose acts or characteristics, etc, should count as the company’s acts or characteristics, etc, for the purpose of applying this particular law?25

How should a court decide whether a company should be characterised as an ‘enemy’ in time of war?

The relevant approach is now set out very explicitly in statute (see below), but contrast the dramatically different approaches of the courts before that Act.

p. 58Trading with the Enemy Act 1939

2 Definition of enemy


Subject to the provisions of this section, the expression ‘enemy’ for the purposes of this Act means—


any State, or Sovereign of a State, at war with His Majesty,


any individual resident in enemy territory,


any body of persons (whether corporate or unincorporate) carrying on business in any place, if and so long as the body is controlled by a person who, under this section, is an enemy,


any body of persons constituted or incorporated in, or under the laws of, a State at war with His Majesty; and


as respects any business carried on in enemy territory, any individual or body of persons (whether corporate or unincorporate) carrying on that business;

but does not include any individual by reason only that he is an enemy subject.


The Board of Trade may by order direct that any person specified in the order shall, for the purposes of this Act, be deemed to be, while so specified, an enemy.

[2.10] Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd [1916] 2 AC 307 (House of Lords)

The Continental Tyre company was incorporated in England, but all except one of its shares were held by persons resident in Germany, and all the directors resided in Germany. The secretary, who held the remaining share, resided in England and was a British subject. The issue was whether the company had standing in an English court to sue and recover a debt when a state of war existed between England and Germany. The company was allowed by the Master to sign summary judgment without proceeding to trial. His decision was affirmed by Scrutton J in chambers and by a greatly enlarged Court of Appeal (Buckley LJ dissenting). [Extracts from the judgments delivered in the Court of Appeal appear at [2.11].] The House of Lords unanimously reversed the order of the Court of Appeal, and directed that the action be struck out as irregular, on the ground that the secretary was not authorised to commence the action; and it held further (by a majority, Lords Shaw of Dunfermline and Parmoor dissenting) that the company, though incorporated in England, was capable of acquiring an enemy character, so that leave to sign summary judgment should not have been given.

LORD PARKER OF WADDINGTON: No one can question that a corporation is a legal person distinct from its corporators; that the relation of a shareholder to a company, which is limited by shares, is not in itself the relation of principal and agent or the reverse; that the assets of the company belong to it and the acts of its servants and agents are its acts, while its shareholders, as such, have no property in the assets and no personal responsibility for those acts. The law on the subject is clearly laid down in … Salomon v A Salomon & Co Ltd [2.02] … I do not think, however, that it is a necessary corollary of this reasoning to say that the character of its corporators must be irrelevant to the character of the company; and this is crucial, for the rule against trading with the enemy depends upon enemy character.

A natural person, though an English-born subject of His Majesty, may bear an enemy character and be under liability and disability as such by adhering to His Majesty’s enemies. If he gives them active aid, he is a traitor; but he may fall far short of that and still be invested with p. 59enemy character. If he has what is known in prize law as a commercial domicil among the King’s enemies, his merchandise is good prize at sea, just as if it belonged to a subject of the enemy power. Not only actively, but passively, he may bring himself under the same disability. Voluntary residence among the enemy, however passive or pacific he may be, identifies an English subject with His Majesty’s foes. I do not think it necessary to cite authority for these well-known propositions, nor do I doubt that, if they had seemed material to the Court of Appeal, they would have been accepted.

How are such rules to be applied to an artificial person, incorporated by forms of law? As far as active adherence to the enemy goes, there can be no difference, except such as arises from the fact that a company’s acts are those of its servants and agents acting within the scope of their authority …

In the case of an artificial person what is the analogue to voluntary residence among the King’s enemies? Its impersonality can hardly put it in a better position than a natural person and lead to its being unaffected by anything equivalent to residence. It is only by a figure of speech that a company can be said to have a nationality or residence at all. If the place of its incorporation under municipal law fixes its residence, then its residence cannot be changed, which is almost a contradiction in terms, and in the case of a company residence must correspond to the birthplace and country of natural allegiance in the case of a living person, and not to residence or commercial domicil. Nevertheless, enemy character depends on these last. It would seem, therefore, logically to follow that, in transferring the application of the rule against trading with the enemy from natural to artificial persons, something more than the mere place or country of registration or incorporation must be looked at.

My Lords, I think that the analogy is to be found in control, an idea which, if not very familiar in law, is of capital importance and is very well understood in commerce and finance. The acts of a company’s organs, its directors, managers, secretary, and so forth, functioning within the scope of their authority, are the company’s acts and may invest it definitively with enemy character. It seems to me that similarly the character of those who can make and unmake those officers, dictate their conduct mediately or immediately, prescribe their duties and call them to account, may also be material in a question of the enemy character of the company. If not definite and conclusive, it must at least be prima facie relevant, as raising a presumption that those who are purporting to act in the name of the company are, in fact, under the control of those whom it is their interest to satisfy. Certainly I have found no authority to the contrary. Such a view reconciles the positions of natural and artificial persons in this regard, and the opposite view leads to the paradoxical result that the King’s enemies, who chance during war to constitute the entire body of corporators in a company registered in England, thereby pass out of the range of legal vision, and, instead, the corporation, which in itself is incapable of loyalty, or enmity, or residence, or of anything but bare existence in contemplation of law and registration under some system of law, takes their place for almost the most important of all purposes, that of being classed among the King’s friends or among his foes in time of war.

What is involved in the decision of the Court of Appeal is that, for all purposes to which the character and not merely the rights and powers of an artificial person are material, the personalities of the natural persons, who are its corporators, are to be ignored. An impassable line is drawn between the one person and the others. When the law is concerned with the artificial person, it is to know nothing of the natural persons who constitute and control it. In questions of property and capacity, of acts done and rights acquired or liabilities assumed thereby, this may be always true. Certainly it is so for the most part. But the character in which property is held, and the character in which the capacity to act is enjoyed and acts are done, are not in pari materia. The latter character is a quality of the company itself, and conditions its capacities and its acts. It is not a mere part of its energies or acquisitions, and if that character must be derivable not from the circumstances of its incorporation, which arises once for all, but from p. 60qualities of enmity and amity, which are dependent on the chances of peace or war and are attributable only to human beings, I know not from what human beings that character should be derived, in cases where the active conduct of the company’s officers has not already decided the matter, if resort is not to be had to the predominant character of its shareholders and corporators. …

THE EARL OF HALSBURY LC and LORD ATKINSON delivered concurring opinions.


LORDS SHAW OF DUNFERMLINE and PARMOOR delivered opinions concurring in the result, but dissenting on this point.

Part of the majority judgment in the Court of Appeal is set out in the following extract. The arguments in favour of recognising or disregarding the corporate entity could hardly be contrasted more sharply. No doubt the factor which most influenced the House of Lords was the paramountcy of the public interest in wartime, and yet their approach is well aligned with modern practice. If a company can be an enemy alien (and given the power of companies over the allocation of valuable commercial and domestic resources, it is difficult to suggest it cannot), then characterisation must depend on some formal or informal attribute of the company. The House of Lords decided that the formal attribute of ‘nationality’ was not the relevant test (either for individuals or for companies), and so settled on another test for the purpose of answering the precise question posed. For other purposes, as the Court of Appeal very properly notes in the next extract, those same concerns need not be material in answering the different question then posed. Appreciating what is going on in these types of analysis is crucial.

[2.11] Continental Tyre and Rubber Co (Great Britain) Ltd v Daimler Co Ltd [1915] 1 KB 893 (Court of Appeal) (subsequently overturned by the House of Lords [2.10])

LORD READING CJ read the judgment of the majority of the court (LORD READING CJ, LORD COZENS-HARDY MR, KENNEDY, PHILLIMORE and PICKFORD LJJ): It cannot be disputed that the plaintiff company is an entity created by statute. It is a company incorporated under the Companies Acts and therefore is a thing brought into existence by virtue of statutory enactment. At the outbreak of war it was carrying on business in the United Kingdom; it had contracted to supply goods, it delivered them, and until the outbreak of the war it was admittedly entitled to receive payment at the due dates. Has the character of the company changed because on the outbreak of war all the shareholders and directors resided in an enemy country and therefore became alien enemies? Admittedly it was an English company before the war. An English company cannot by reason of these facts cease to be an English company. It remains an English company regardless of the residence of its shareholders or directors either before or after the declaration of war. Indeed it was not argued by Mr Gore-Browne that the company ceased to be an entity created under English law, but it was argued that the law in time of war and in reference to trading with the enemy should sweep aside this ‘technicality’ as the entity was described and should treat the company not as an English company but as a German company and therefore as an alien enemy. If the creation and existence of the company could be treated as a mere technicality, there would be considerable force in this argument. It is undoubtedly the policy of the law as administered in our courts of justice to regard substance and to disregard form. Justice should not be hindered by mere technicality, but substance must not be treated as form or swept aside as technicality because that course might appear convenient in a particular case. p. 61The fallacy of the appellants’ contention lies in the suggestion that the entity created by statute is or can be treated during the war as a mere form or technicality by reason of the enemy character of its shareholders and directors. A company formed and registered under the Companies Acts has a real existence with rights and liabilities as a separate legal entity. It is a different person altogether from the subscribers to the memorandum or the shareholders on the register (per Lord Macnaghten in Salomon v A Salomon & Co Ltd [2.02]). It cannot be technically an English company and substantially a German company except by the use of inaccurate and misleading language. Once it is validly constituted as an English company it is an artificial creation of the legislature and it retains its existence for all intents and purposes. It is a living thing with a separate existence which cannot be swept aside as a technicality. It is not a mere name or mask or cloak or device to conceal the identity of persons and it is not suggested that the company was formed for any dishonest or fraudulent purpose. It is a legal body clothed with the form prescribed by the legislature …

For the appellants’ contention to succeed, payment to the company must be treated as payment to the shareholders of the company, but a debt due to a company is not a debt due to all or any of its shareholders: Salomon v Salomon & Co. The company and the company alone is the creditor entitled to enforce payment of the debt and empowered to give to the debtor a good and valid discharge. Once this conclusion is reached it follows that payment to the plaintiff company is not payment to the alien enemy shareholders or for their benefit …

BUCKLEY LJ delivered a dissenting judgment.


1. Explain why the personal characteristics of the shareholders were immaterial in Salomon v A Salomon & Co Ltd [2.02] but material in Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd [2.10].

2. Could a landlord be guilty of an offence under the Equality Act 2010 if he refused to lease premises to a company incorporated in England which was owned and controlled by three Nigerian businessmen?

Limits to the idea of a company as a ‘person’?

The cases noted previously confirm that the central theoretical and practical feature of company law is that incorporation creates a new and separate legal entity, a ‘being’ capable of enjoying rights, exercising powers and incurring duties and obligations. It is traditional to describe any subject of rights and duties as a legal ‘person’. But it is one thing to attribute legal capacities to a company, and quite another to treat it as having human characteristics and qualities.26 Despite an initial hesitation in finding that companies were separate persons, the courts now seem to have pursued the analogy with a physical person almost as far as it is possible to go, ascribing to companies human attributes such as reputation or intention to defraud which would previously have been regarded as unthinkable. For an indication of how far the law has moved, consider the next extract. At least half of its assertions would now be regarded as false.

p. 62Blackstone, ‘Commentaries on the Laws of England’ (1768), Vol 1, p 476

(Blackstone acknowledges that his remarks are based on views expressed by Coke more than a century and a half earlier.) Footnotes in the original are omitted.

‘Of Corporations’

There are also certain privileges and disabilities that attend an aggregate corporation, and are not applicable to such as are sole;[27] the reason of them ceasing and of course the law. It must always appear by attorney; for it cannot appear in person, being, as Sir Edward Coke says, invisible, and existing only in intendment and consideration of law. It can neither maintain, or be made defendant to, an action of battery or such like personal injuries; for a corporation can neither beat, nor be beaten, in it’s body politic. A corporation cannot commit treason, or felony, or other crime, in it’s corporate capacity: though it’s members may, in their distinct individual capacities. Neither is it capable of suffering a traitor’s or felon’s punishment, for it is not liable to corporal penalties, nor to attainder, forfeiture, or corruption of blood. It cannot be executor or administrator, or perform any personal duties; for it cannot take an oath for the due execution of the office. It cannot be seised of lands to the use of another; for such kind of confidence is foreign to the end of it’s institution. Neither can it be committed to prison; for it’s existence being ideal, no man can apprehend or arrest it. And therefore also it cannot be outlawed; for outlawry always supposes a precedent right of arresting, which has been defeated by the parties absconding, and that also a corporation cannot do: for which reasons the proceedings to compel a corporation to appear to any suit by attorney are always by distress on their lands and goods. Neither can a corporation be excommunicated; for it has no soul, as is gravely observed by Sir Edward Coke: and therefore also it is not liable to be summoned into the ecclesiastical courts upon any account; for those courts act only pro salute animae, and their sentences can only be enforced by spiritual censures: a consideration, which, carried to it’s full extent, would alone demonstrate the impropriety of these courts interfering in any temporal rights whatsoever.

‘Piercing the corporate veil’ vs separate legal personality

From the cases considered so far, it is already clear that two important ideas are in competition: the allegedly core and inviolate feature of separate legal personality (and the associated consequence of limited liability of members, as explained below) and the competing claim to ‘pierce the corporate veil’ (and the associated right to advance claims against the members behind the company). It is this tension and its resolution which is addressed now.

Recall the general rule that if (as is usual) the liability of a company’s members is limited ‘by shares’ or ‘by guarantee’, then the company’s creditors cannot seek satisfaction from the members, even if the company has insufficient funds to pay its own liabilities in full: see ‘Companies limited by shares and companies limited by guarantee’, p 22. Many of the cases cited previously can be used to illustrate this. Notice in particular that members are not made liable to outsiders simply because (as members or shareholders) they controlled the company’s activities and thus caused liability to be incurred (see, eg, Salomon p. 63[2.02] and Lee’s Air Farming [2.05]). This general point is crucial to understanding this area of the law.

But are there exceptions to this general rule? Are there times where the company’s members can be called upon, by outsiders, to meet the company’s unpaid liabilities? It is not difficult to imagine situations where outsiders might wish to do this. If a profitable holding company has an underfunded subsidiary that cannot meet tort liabilities to hundreds of victims of the subsidiary’s negligence, then the victims may want payment from the parent company (ie from the subsidiary’s shareholder—see, eg, Adams v Cape Industries [2.07]). Can they successfully seek this? The general rule says no, but are there ever any exceptions? Similarly, if a ‘one man company’ is completely under-resourced and unable to meet its trading debts, but its ‘one man owner’ is personally wealthy, can the company’s creditors ever claim against the owner-shareholder? Salomon [2.02] was just such a case, so the general answer is clearly no, but, again, are there exceptions?

This section looks at the exceptions, and at the arguments that have been advanced both successfully and unsuccessfully by outsiders (ie third parties) wishing to pursue such claims. Typically these claims are unsuccessful. Instead, those who adopt the corporate form, or trade with it, are expected to take the rough with the smooth. This was emphasised by Browne-Wilkinson V-C in Tate Access Floors Inc v Boswell [1991] Ch 512 at 531 (his focus was on the downside for members, whereas we are concerned with the downside for outsiders):

If people choose to conduct their affairs through the medium of corporations, they are taking advantage of the fact that in law those corporations are separate legal entities, whose property and actions are in law not the property or actions of their incorporators or controlling shareholders. In my judgment controlling shareholders cannot, for all purposes beneficial to them, insist on the separate identity of such corporations but then be heard to say the contrary when discovery [ie disclosure, but by implication any other disadvantage] is sought against such corporations.

The meaning of ‘piercing the corporate veil’

This area is considerably more straightforward since the decision of the Supreme Court in Prest v Petrodel Resources Ltd [2.12].28 Before considering that case, one important issue of clarification may be helpful. ‘Piercing (or lifting) the corporate veil’ (the former term now being more common) refers to the possibility of looking behind the company framework (or behind the company’s separate personality) to make the members liable, as an exception to the rule that they are normally shielded by the corporate shell (ie they are normally not liable to outsiders at all, either as principals or as agents or in any other guise, and are only normally liable to pay the company what they agreed to pay by way of share purchase price or guarantee, nothing more).

Before the Supreme Court decision in Prest v Petrodel Resources Ltd, cases and commentary used the term ‘piercing the corporate veil’ rather indiscriminately to describe a wide variety of instances where successful and unsuccessful claims were advanced to make the members liable for corporate failings. As Lord Neuberger PSC put it, at [64]:

It is … clear from the cases and academic articles that the law relating to the doctrine is unsatisfactory and confused. Those cases and articles appear to me to suggest that (i) there is not a p. 64single instance in this jurisdiction where the doctrine has been invoked properly and successfully, (ii) there is doubt as to whether the doctrine should exist, and (iii) it is impossible to discern any coherent approach, applicable principles, or defined limitations to the doctrine.

After the Supreme Court decision, far greater precision is warranted. The expression ‘piercing the corporate veil’, and the ‘doctrine’ of the same name, is now reserved for instances where the court does indeed ignore the separate personality of the company, and looks behind the corporate ‘veil’ to the members. Continuing judicial discretion to ignore the Salomon [2.02] principle in this way is said to be justified on public policy grounds, as explained in Prest v Petrodel Resources Ltd [2.12]. But although the Supreme Court unanimously agreed that the doctrine exists (and the court’s discretion persists), their judgments suggest there is not a single illustration of its necessary application (see Lord Neuberger, earlier), and that, being a principle of public policy, it should only be relied upon where it is essential.

Nevertheless, there are a good number of cases where the members are indeed made liable, despite a corporate intermediary standing between the claimant and the members. However, all these cases can be explained on orthodox legal principles (even if the courts before Prest v Petrodel Resources Ltd did not explain them this way). Various arguments can be run: for example, the members are liable—and a court order can be made against them—because, exceptionally, their acts are such as to constitute them ‘principals’ (and the company is merely an agent), or ‘beneficiaries’ (and the company is merely the trustee of the corporate assets for their benefit), or constructive trustees or ‘dishonest assistants’ in wrongs committed by the company, or indeed the members themselves are independently liable in tort to the claimants. These and other possibilities are examined later in ‘Connections between the company and other persons’, p 78.

But notice one quirk in the fact patterns in these cases. The above discussion assumes the fact pattern seen in cases such as Salomon v Salomon [2.02] and Adams v Cape Industries plc [2.07]: the company is under an obligation to some outsider, but cannot meet that obligation, so the outsider seeks to ‘pierce the corporate veil’ and hold the better-resourced members obliged in the same way. To date, these claims have been unsuccessful as ‘piercing’ cases. This fact pattern has been labelled ‘forward piercing’ or ‘standard piercing’, to differentiate it from a second fact pattern, referred to as ‘reverse piercing’ or ‘backward piercing’.29 This is evident in cases such as Prest v Petrodel Resources Ltd [2.12] and Gilford Motor Co Ltd v Horne [1933] Ch 935 (discussed in detail in Prest v Petrodel Resources Ltd [2.15]), where the controlling member was under an obligation to the outsider, and the outsider sought to render the company liable for breach of the obligation.

The common denominator between both fact patterns is that an outsider seeks to treat both the company and its controlling members (as they always are) as legal equivalents, so that if one is liable, then so is the other. Both Salomon v Salomon [2.02] and Prest v Petrodel Resources Ltd [2.12] make it plain that the company and its members are not legal equivalents: that is the point of separate legal personality, and the mere fact of member control, even absolute control, does not change that. This explains why ‘forward piercing’ is unlikely to be successful: as the Supreme Court explained in Rossendale Borough Council v Hurstwood Properties (A) Ltd [2.16], if an obligation has only ever been incurred by a company, it is difficult to see how it can ever be treated as an obligation of the company’s controllers. By contrast, ‘reverse piercing’ may be permitted in very limited circumstances where a controlling member is abusing the corporate form in order to evade the law. But even then, as mentioned earlier, such cases are often explicable simply on the basis p. 65that two people are liable for the same harms: not because the two people are treated as legal equivalents, but because some particular connection can be established between them. This approach does not rely on ‘piercing’ at all; indeed, the separate corporate person is essential to the analysis that both parties are liable. As a result, it seems doubtful whether the courts ever ‘pierce the veil’ in any meaningful sense at all.

Finally, it is important not to confuse this analysis with the possibility of making a company’s directors liable. Admittedly, it is equally difficult for outsiders to sue the company’s directors to make them carry liability for the company’s unfulfilled obligations. Third parties must generally sue the company, not its directors. They can sue directors only when one of the agency or trust arguments just aired can be advanced (but this time in the context of the directors, not the members). But, unlike the members, the directors’ liability is certainly not limited. Directors owe quite significant duties to the company, and the company can sue the directors for any wrongs they have committed against it. These recoveries will accrue to the company, and so increase the chance that third parties will be paid. The directors’ liability for corporate losses is not strict (ie directors do not guarantee that the company will be a success), but is a liability for wrongs committed against the company, such as negligence and other breaches of duty to the company (see Chapter 7).

The court may ‘pierce the corporate veil’ (using that expression narrowly) only where a person under an existing legal obligation or subject to an existing legal restriction deliberately evades or frustrates its enforcement by interposing a company under his or her control.

[2.12] Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 (Supreme Court)

In matrimonial proceedings concerning the division of assets said to be worth over £50 million, the appellant wife (W) applied to have certain residential properties transferred to her. The properties were not owned by her husband (H), however, but by the respondent group of companies (X), being companies operated and controlled by H. The trial judge concluded that H was entitled to possession or reversion of the properties, within the Matrimonial Causes Act 1973 s 24(1), and this statute therefore entitled the court to pierce the corporate veil and order H to transfer them to W. The Court of Appeal reversed that decision, holding that there were no legitimate grounds for piercing the corporate veil. The Supreme Court agreed, also holding that the Matrimonial Causes Act 1973 s 24(1) did not provide a distinct power to disregard the corporate veil in matrimonial cases. The court nevertheless found unanimously in favour of W on the basis that the most plausible inference from the little-known facts was that each of the properties was held on a resulting trust by X for H ([45], [47]). There was no reliable evidence to rebut that inference, given the husband’s refusal to afford disclosure, and accordingly the seven disputed properties were required to be transferred to W ([49]–[51], [55]). The extracts below concentrate exclusively on the general issue of piercing the corporate veil, although the judgments merit reading in full.


[The Salomon principle]

8. Subject to very limited exceptions, most of which are statutory, a company is a legal entity distinct from its shareholders. It has rights and liabilities of its own which are distinct from those of its shareholders. Its property is its own, and not that of its shareholders. In Salomon v A Salomon and Co Ltd [2.02], the House of Lords held that these principles applied as much to a company that was wholly owned and controlled by one man as to any other company. …

p. 66[Availability of other options]

16. I should first of all draw attention to the limited sense in which this issue arises at all. ‘Piercing the corporate veil’ is an expression rather indiscriminately used to describe a number of different things. Properly speaking, it means disregarding the separate personality of the company. There is a range of situations in which the law attributes the acts or property of a company to those who control it, without disregarding its separate legal personality. … But when we speak of piercing the corporate veil, we are not (or should not be) speaking of any of these situations, but only of those cases which are true exceptions to the rule in Salomon v A Salomon and Co Ltd [2.02], i.e. where a person who owns and controls a company is said in certain circumstances to be identified with it in law by virtue of that ownership and control.

[Existence of general limits to separate legal personality]

17. Most advanced legal systems recognise corporate legal personality while acknowledging some limits to its logical implications. In civil law jurisdictions, the juridical basis of the exceptions is generally the concept of abuse of rights … which extends not just to the illegal and improper invocation of a right but to its use for some purpose collateral to that for which it exists.

18. English law has no general doctrine of this kind. But it has a variety of specific principles which achieve the same result in some cases. One of these principles is that the law defines the incidents of most legal relationships between persons (natural or artificial) on the fundamental assumption that their dealings are honest. The same legal incidents will not necessarily apply if they are not. The principle was stated in its most absolute form by Denning LJ in a famous dictum in Lazarus Estates Ltd v Beasley [1956] 1 QB 702, 712:

‘No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. The court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved, it vitiates judgments, contracts and all transactions whatsoever …’

… These decisions (and there are others) illustrate a broader principle governing cases in which the benefit of some apparently absolute legal principle has been obtained by dishonesty. The authorities show that there are limited circumstances in which the law treats the use of a company as a means of evading the law as dishonest for this purpose.

[English illustrations of ‘lifting’ or ‘piercing’ the corporate veil]

19. The question is heavily burdened by authority, much of it characterised by incautious dicta and inadequate reasoning. [His Lordship then examined those cases in detail.] …

[Summary of review of the cases]

27. In my view, the principle that the court may be justified in piercing the corporate veil if a company’s separate legal personality is being abused for the purpose of some relevant wrongdoing is well established in the authorities. It is true that most of the statements of principle in the authorities are obiter, because the corporate veil was not pierced. It is also true that most cases in which the corporate veil was pierced could have been decided on other grounds. But the consensus that there are circumstances in which the court may pierce the corporate veil is impressive. I would not for my part be willing to explain that consensus out of existence. This is because I think that the recognition of a limited power to pierce the corporate veil in carefully defined circumstances is necessary if the law is not to be disarmed in the face of abuse. I also think that provided the limits are recognised and respected, it is consistent with the general approach of English law to the problems raised by the use of legal concepts to defeat mandatory rules of law.

p. 67[Proposed analysis]

28. The difficulty is to identify what is a relevant wrongdoing. References to a ‘facade’ or ‘sham’ beg too many questions to provide a satisfactory answer. It seems to me that two distinct principles lie behind these protean terms, and that much confusion has been caused by failing to distinguish between them. They can conveniently be called the concealment principle and the evasion principle. [Emphasis added] The concealment principle is legally banal and does not involve piercing the corporate veil at all. 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. The evasion principle is different. It is that the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company’s involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement. Many cases will fall into both categories, but in some circumstances the difference between them may be critical. This may be illustrated by reference to those cases in which the court has been thought, rightly or wrongly, to have pierced the corporate veil. [His Lordship then proceeded to examine these cases.]

[Conclusion on the broader principle in ‘piercing the corporate veil’]

34. These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. It may be an abuse of the separate legal personality of a company to use it to evade the law or to frustrate its enforcement. It is not an abuse to cause a legal liability to be incurred by the company in the first place. It is not an abuse to rely upon the fact (if it is a fact) that a liability is not the controller’s because it is the company’s. On the contrary, that is what incorporation is all about. …

35. I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. [Emphasis added] The court may then pierce the corporate veil for the purpose, and only 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. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil. Like Munby J in Ben Hashem v Al Shayif [2009] 1 FLR 115 [at [164]], I consider that if it is not necessary to pierce the corporate veil, it is not appropriate to do so, because on that footing there is no public policy imperative which justifies that course. … For all of these reasons, the principle has been recognised far more often than it has been applied. But the recognition of a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company is, I believe, consistent with authority and with long-standing principles of legal policy.

[Application to the facts here: no piercing]

36. … The husband has acted improperly in many ways. In the first place, he has misapplied the assets of his companies for his own benefit, but in doing that he was neither concealing nor evading any legal obligation owed to his wife. Nor, more generally, was he concealing or evading the law relating to the distribution of assets of a marriage on its dissolution. It cannot follow that the court should disregard the legal personality of the companies with the same insouciance as he did. Secondly, the husband has made use of the opacity of the Petrodel Group’s corporate structure to deny being its owner … but that simply means that the court must ascertain the truth that he has concealed, as it has done. The problem in the present case is that the legal p. 68interest in the properties is vested in the companies and not in the husband. They were vested in the companies long before the marriage broke up. Whatever the husband’s reasons for organising things in that way, there is no evidence that he was seeking to avoid any obligation which is relevant in these proceedings. The judge found that his purpose was ‘wealth protection and the avoidance of tax’: para 218. It follows that the piercing of the corporate veil cannot be justified in this case by reference to any general principle of law.


59. I wish … to add a little to what Lord Sumption says on the question of whether, and if so, in what circumstances, the court has power to pierce the corporate veil in the absence of specific statutory authority to do so. [His Lordship then proceeded, agreeing with much of the analysis of Lord Sumption, and also considering the judicial and academic criticisms of ‘piercing the corporate veil’, before continuing:]

79. In these circumstances, I was initially strongly attracted by the argument that we should decide that a supposed doctrine, which is controversial and uncertain, and which, on analysis, appears never to have been invoked successfully and appropriately in its 80 years of supposed existence, should be given its quietus. Such a decision would render the law much clearer than it is now, and in a number of cases it would reduce complications and costs: whenever the doctrine is really needed, it never seems to apply.

80. However, I have reached the conclusion that it would be wrong to discard a doctrine which, while it has been criticised by judges and academics, has been generally assumed to exist in all common law jurisdictions, and represents a potentially valuable judicial tool to undo wrongdoing in some cases, where no other principle is available. Accordingly, provided that it is possible to discern or identify an approach to piercing the corporate veil, which accords with normal legal principles, reflects previous judicial reasoning (so far as it can be discerned and reconciled), and represents a practical solution (which hopefully will avoid the problems summarised in para 75 above), I believe that it would be right to adopt it as a definition of the doctrine. [He then accepted Lord Sumption’s formulation.] …

[Should the doctrine be abolished? Is this a company-specific doctrine?]

83. It is only right to acknowledge that this limited doctrine may not, on analysis, be limited to piercing the corporate veil. However, there are three points to be made about that formulation. In so far as it is based on ‘fraud unravels everything’, as discussed by Lord Sumption in para 18, the formulation simply involves the invocation of a well-established principle, which exists independently of the doctrine. In any event, the formulation is not, on analysis, a statement about piercing the corporate veil at all. Thus, it would presumably apply equally to a person who transfers assets to a spouse or civil partner, rather than to a company. Further, at least in some cases where it may be relied on, it could probably be analysed as being based on agency or trusteeship especially in the light of the words ‘under his control’. However, if either or both those points were correct, it would not undermine Lord Sumption’s characterisation of the doctrine: it would, if anything, serve to confirm the existence of the doctrine, albeit as an aspect of a more conventional principle. And if the formulation is intended to go wider than the application of ‘fraud unravels everything’, it seems to me questionable whether it would be right for the court to take the course of arrogating to itself the right to step in and undo transactions, save where there is a well-established and principled ground for doing so. Such a course is, I would have thought, at least normally, a matter for the legislature. Indeed Parliament has decided to legislate to this effect in specified and limited circumstances with protection for third parties, in provisions such as section 37 of the Matrimonial Causes Act 1973 and section 423 of the Insolvency Act 1986.

BARONESS HALE SCJ (with whom LORD WILSON SCJ agreed), LORDS MANCE AND CLARKE SCJJ and LORD WALKER all agreed, adding further comments of their own.

p. 69As a result of this case, it might be suggested that the doctrine exists, but has no present or future function, whatever may have been its life in the past. That is confirmed in the next case.

[2.13] Antonio Gramsci Shipping Corpn v Recoletos Ltd [2013] EWCA Civ 730 (Court of Appeal)

As part of an allegedly fraudulent scheme, a company had entered into a contract containing an exclusive English jurisdiction clause. The issue for decision was whether the corporate veil could be pierced to establish that the company’s controller could also be regarded as having consented to the English courts having jurisdiction over a claim against him. Both the trial judge and the Court of Appeal held it could not.

BEATSON LJ (with whom RYDER and LLOYD LJJ agreed):

(vi) The policy-based submission

63. It remains to deal with Mr Rainey [counsel for the claimant]’s policy-based submission … that the court needs to prevent fraudsters sheltering behind the corporate structure of companies in circumstances such as the facts alleged in this case. There is undoubted force in this submission …

64. Mr Rainey’s case is that the court can and should pierce the corporate veil where there is a good arguable case that the defendant has set up the puppet company for the purpose of defrauding an innocent party with whom the puppet company contracts in order to avoid being sued in the courts of a member state in which the puppet company has agreed to be sued. …

65. The references in Lord Sumption JSC’s judgment in Prest v Petrodel Resources Ltd [2.12] (at paras 27 and 34) to ‘abuse of corporate legal personality’ as justifying piercing the corporate veil may appear to give some support to a policy-based approach. But it is clear from the decision of the Supreme Court that, in the present state of English law, the court can only pierce the corporate veil when ‘a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control’: see paras 35, 60 and 98. Lord Mance and Lord Clarke JJSC, at paras 100 and 103, did not want to foreclose further development of the law, and Baroness Hale of Richmond JSC’s approach, at paras 91–92, appears to be to the same effect, but that is where English law stands at present. In the light of the decisions in the VTB Capital [2.17] and Prest [2.12] cases, the submission that it is possible to pierce the corporate veil in this case to deem Mr Lembergs to have consented to the jurisdiction clause is untenable.

66. As to further development of the law, doing so by classical common law techniques may not be easy. In the Prest case Lord Sumption JSC, at para 28, identified two underlying principles which he called ‘the concealment principle’ and ‘the evasion principle’. But Lord Neuberger PSC was of the view, at para 75, that there is a ‘lack of any coherent principle in the application of the doctrine’ of piercing the corporate veil, and Lord Walker of Gestingthorpe’s view, at para 106, was that it is not a doctrine in the sense of a coherent principle or rule of law but a label. Baroness Hale JSC, at para 92, was ‘not sure whether it is possible to classify all of the cases in which the courts have been or should be prepared to disregard the separate legal personality of a company neatly into cases of either concealment or evasion’. Absent a principle, further development of the law will be difficult for the courts because development of common law and equity is incremental and often by analogical reasoning.

The current position

The approach adopted here—and the right approach, it is suggested—is that ‘piercing the veil’ may be possible as a matter of law (the Supreme Court has said so), but the Supreme Court has also indicated that the principle cannot be relied upon when other p. 70routes to the same ends are available: that is, routes which do not ignore the company’s separate legal person, but instead rely on particular legal relationships between the corporate person and its members. Interestingly, however, when those other routes are not available, it seems—at least empirically—that public policy is also not called into play to allow piercing on public policy grounds. So does the principle serve any practical purpose? It appears not.

That view is reinforced by the Supreme Court’s own discussion of the older cases illustrating ‘concealment’ (no piercing involved) and ‘evasion’ (two cases where the courts themselves expressly based their conclusions on piercing, but where the Supreme Court indicates it was not in fact the only route available, and so, by implication, was not the route which should have been adopted). That discussion appears in the extracts which follow.

Illustrating ‘concealment’

[2.14] Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 (Supreme Court)

This extract considers Gencor ACP Ltd v Dalby [2000] 2 BCLC 734. Dalby, the director of a public company, had dishonestly diverted assets and business opportunities from this public company to a Virgin Islands company owned and controlled by Dalby himself. An order that the benefits so obtained should be disgorged was made against the offshore company as well as against Dalby personally.


[Contrast a case of ‘concealment’ only]

31. In Gencor ACP Ltd v Dalby [2000] 2 BCLC 734, the plaintiff made a large number of claims against a former director, Mr Dalby, for misappropriating its funds. For present purposes the claim which matters is a claim for an account of a secret profit which Mr Dalby procured to be paid by a third party, Balfour Beatty, to a British Virgin Island company under his control called Burnstead. Rimer J held, at para 26, that Mr Dalby was accountable for the money received by Burnstead, on the ground that the latter was ‘in substance little other than Mr Dalby’s offshore bank account held in a nominee name’, and ‘simply … the alter ego through which Mr Dalby enjoyed the profit which he earned in breach of his fiduciary duty to ACP’. Rimer J ordered an account against both Mr Dalby and Burnstead. He considered that he was piercing the corporate veil. But I do not think that he was. His findings about Mr Dalby’s relationship with the company and his analysis of the legal consequences show that both Mr Dalby and Burnstead were independently liable to account to ACP, even on the footing that they were distinct legal persons. … [He then explained why.]

33. In … the Gencor case, the analysis would have been the same if [the nominee company] had been a natural person instead of a company. The evasion principle was not engaged, and indeed could not have been engaged on the facts of either case. This is because [Mr Dalby had not used] the company’s separate legal personality to evade a liability that [he] would otherwise have had. [He was liable to account for the secret profit only if the true facts were that the nominee company had received the money as nominee for Mr Dalby.] That was proved … The situation was not the same as it had been in Gilford Motor Co v Horne [1933] Ch 935 and Jones v Lipman [1962] 1 WLR 832 [both cases are considered later, at ‘What counts as evasion?’, p 71], for in these cases the real actors, Mr Horne and Mr Lipman, had a liability which arose independently of the involvement of the company.

p. 71 Note

In Rossendale Borough Council v Hurstwood Properties (A) Ltd [2.16], Lord Briggs and Lord Leggatt JJSC (at [65]) referred to the ‘concealment’ principle and confirmed that:

In these cases, the court is merely looking behind the company to discover the facts which the corporate structure is concealing and applying the ordinary legal or equitable principles to those facts. This concealment principle is legally banal and does not involve piercing the corporate veil at all (para 28).

What counts as ‘evasion’?

[2.15] Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 (Supreme Court)

The relevant facts are indicated in the judgment.


[Revisiting authorities which ‘pierced the veil’]

29. The first and most famous of them is Gilford Motor Co Ltd v Horne [1933] Ch 935. Mr EB Horne had been the managing director of the Gilford Motor Co. His contract of employment precluded him being engaged in any competing business in a specified geographical area for five years after the end of his employment ‘either solely or jointly with or as agent for any other person, firm or company’. He left Gilford and carried on a competing business in the specified area, initially in his own name. He then formed a company, JM Horne & Co Ltd, named after his wife, in which she and a business associate were shareholders. The trial judge, Farwell J, found that the company had been set up in this way to enable the business to be carried on under his own control but without incurring liability for breach of the covenant. However the reality, in his view, was that the company was being used as ‘the channel through which the defendant Horne was carrying on his business’: p 943. In fact, he dismissed the claim on the ground that the restrictive covenant was void. But the Court of Appeal allowed the appeal on that point and granted an injunction against both Mr Horne and the company. As against Mr Horne, the injunction was granted on the concealment principle. Lord Hanworth MR said, at pp 961–962, that the company was a ‘mere cloak or sham’ because the business was really being carried on by Mr Horne. Because the restrictive covenant prevented Mr Horne from competing with his former employers whether as principal or as agent for another, it did not matter whether the business belonged to him or to JM Horne & Co Ltd provided that he was carrying it on. The only relevance of the interposition of the company was to maintain the pretence that it was being carried on by others. Lord Hanworth MR did not explain why the injunction should issue against the company, but I think it is clear from the judgments of Lawrence and Romer LJJ, at pp 962 and 966, that they were applying the evasion principle. Lawrence LJ, who gave the fullest consideration to the point, based his view entirely on Mr Horne’s evasive motive for forming the company. This showed that it was

‘a mere channel used by the defendant Horne for the purpose of enabling him, for his own benefit, to obtain the advantage of the customers of the plaintiff company, and that therefore the defendant company ought to be restrained as well as the defendant Horne.’

In other words, the company was restrained in order to ensure that Horne was deprived of the benefit which he might otherwise have derived from the separate legal personality of the p. 72company … [T]‌his is properly to be regarded as a decision to pierce the corporate veil. It is fair to say that the point may have been conceded by counsel … It is also true that the court in Gilford Motor Co Ltd v Horne [1933] Ch 935 might have justified the injunction against the company on the ground that Mr Horne’s knowledge was to be imputed to the company so as to make the latter’s conduct unconscionable or tortious, thereby justifying the grant of an equitable remedy against it. But the case is authority for what it decided, not for what it might have decided, and in my view the principle which the Court of Appeal applied was correct. It does not follow that JM Horne & Co Ltd was to be identified with Mr Horne for any other purpose. Mr Horne’s personal creditors would not, for example, have been entitled simply by virtue of the facts found by Farwell J, to enforce their claims against the assets of the company.

30. Jones v Lipman [1962] 1 WLR 832 was a case of very much the same kind. The facts were that Mr Lipman sold a property to the plaintiffs for £5,250 and then, thinking better of the deal, sold it to a company called Alamed Ltd for £3,000, in order to make it impossible for the plaintiffs to get specific performance. The judge, Russell J, found that company was wholly owned and controlled by Mr Lipman, who had bought it off the shelf and had procured the property to be conveyed to it ‘solely for the purpose of defeating the plaintiffs’ rights to specific performance’. About half of the purchase price payable by Alamed was funded by borrowing from a bank, and the rest was left outstanding. The judge decreed specific performance against both Mr Lipman and Alamed Ltd. As against Mr Lipman this was done on the concealment principle. Because Mr Lipman owned and controlled Alamed Ltd, he was in a position specifically to perform his obligation to the plaintiffs by exercising his powers over the company. This did not involve piercing the corporate veil, but only identifying Mr Lipman as the man in control of the company. The company, said Russell J portentously at p 836, was ‘a device and a sham, a mask which [Mr Lipman] holds before his face in an attempt to avoid recognition by the eye of equity’. On the other hand, as against Alamed Ltd itself, the decision was justified on the evasion principle, by reference to the Court of Appeal’s decision in Gilford Motor Co Ltd v Horne. The judge must have thought that in the circumstances the company should be treated as having the same obligation to convey the property to the plaintiff as Mr Lipman had, even though it was not party to the contract of sale. It should be noted that he decreed specific performance against the company notwithstanding that as a result of the transaction, the company’s main creditor, namely the bank, was prejudiced by its loss of what appears from the report to have been its sole asset apart from a possible personal claim against Mr Lipman which he may or may not have been in a position to meet. This may be thought hard on the bank, but it is no harder than a finding that the company was not the beneficial owner at all. The bank could have protected itself by taking a charge or registering the contract of sale.

[But contrast the analysis of Lord Neuberger.]


[‘Piercing’ doctrine is not needed to solve the practical problems]

69. On closer analysis of [the cases just discussed], it does not appear to me that the facts and outcomes in the Gilford Motor and Jones cases provide much direct support for the doctrine. However, the decisions can fairly be said to have rested on the doctrine if one takes the language of the judgments at face value. Further, they indicate that, where a court is of the view (albeit that I think that it was mistaken in those cases) that there is no other method of achieving justice, the doctrine provides a valuable means of doing so. …

[He then proceeded to explain why the doctrine was not necessary in deciding these cases, as follows:] …

71. In any event, it seems to me that the decision in the Gilford Motor case that an injunction should be granted against the company was amply justified on the basis that the company was Horne’s agent for the purpose of carrying on the business (just as his wife would have been, if he had used her as the ‘cloak’); therefore, if an injunction was justified against Horne, it was justified p. 73against the company. There is nothing in the judgments in the Gilford Motor case to suggest that any member of the Court of Appeal thought that he was making new law, let alone cutting into the well established and simple principle laid down in Salomon v A Salomon & Co Ltd [2.02]. …

73. As for Jones v Lipman [1962] 1 WLR 832, I am unconvinced that it was necessary for Russell J to invoke the doctrine in order to justify an effective order for specific performance, as sought by the plaintiffs in that case. An order for specific performance would have required Lipman not merely to convey the property in question to the plaintiffs, but to do everything which was reasonably within his power to ensure that the property was so conveyed: see eg Wroth v Tyler [1974] Ch 30, 47–51. Lipman and an employee of his solicitors were the sole shareholders and directors of the company, and its sole liability appears to have been a loan of £1,500 to a bank (borrowed to meet half the £3,000 which it paid for the property). In those circumstances, it seems clear that Lipman could have compelled the company to convey the property to the plaintiffs (on the basis that he would have to account to the company for the purchase price, which would have ensured that the bank was in no way prejudiced). Indeed, I consider that the company could fairly have been described and treated as being Lipman’s ‘creature’, without in any way cutting into the principle established in Salomon v A Salomon & Co Ltd [2.02].


This view of these cases is not novel. Lord Cooke, in his Hamlyn Lectures,30 said of Jones v Lipman:

Since the company was in the vendor’s control, there was no difficulty in granting a decree of specific performance against him. Describing the company as a creation of the vendor, a device, sham and mask, the judge also decreed specific performance directly against it. Those epithets, however, do not appear to have been needed to justify the remedy. No particular difficulty should arise in holding that a company or any other purchaser acquiring property with actual notice that the transaction is a fraud on a prior purchaser takes subject to the latter’s equity.

This makes an important point. Courts often say that they are treating the company itself as a sham (as in the remarks by Russell J in Jones v Lipman [1962] 1 WLR 832), with the implication that the company’s existence is then ignored.31 Often, however, this is shorthand for finding a reason—and not a special company law reason—for holding that both the company and individual in control should comply with certain obligations. Put another way, the company’s separate existence is certainly not ignored: the court orders the company as well as the defendant to comply with the obligations.


1. It is sometimes suggested that ‘piercing the veil’ is still needed to explain cases like Horne and Lipman. In Horne, for example, it was Mr Horne who was subject to the restraint of trade clause, no one else, and there was no wrong committed at all unless Horne himself was in breach of this clause. To find Horne in breach when a company was doing the acts which, if done by Horne, would undoubtedly have been a breach of the clause, necessarily involves ‘piercing’—or so the argument goes. Is the counter-argument precisely that put by Lord Neuberger? If Horne’s wife, or some other individual human person, could in the same circumstances have been restrained from running a competing business, then the p. 74legal argument cannot be based on ‘piercing the veil’; it must be some other argument. Lord Neuberger suggested it was agency. The range of possible options includes (but is perhaps not limited to) those considered in the next section: see ‘Connections between the company and other persons’, p 78.

2. Consider more carefully Lord Neuberger’s suggestion that ‘agency’ could provide an answer to the Horne dilemma. Then comes the very difficult question, when will a company be considered to be an agent of its ‘controller’? We have seen from Salomon [2.02] that mere control, even absolute control, is not enough. Do the cases considered in ‘Agency rules and third parties’, p 79, provide any clearer guidelines? The question is difficult—but it is undoubtedly a much better ‘difficult question’ than the unfocused question, ‘should the veil be pierced?’

[2.16] Rossendale Borough Council v Hurstwood Properties (A) Ltd [2021] UKSC 16, [2021] 2 WLR 1125 (Supreme Court)

The defendants were the owners of a number of unoccupied commercial properties. Under the Local Government Finance Act 1988 s 45(1)(b), non-domestic rates were payable on the properties by the ‘owner of the hereditament’, who was defined in s 65(1) as ‘the person entitled to possession’ of it. The defendants set up companies (special purpose vehicles or ‘SPVs’) to whom leases were granted. The leases conferred an entitlement to possession of the land on the companies. The defendants then voluntarily wound up the SPVs (in order to avail of a rate exemption which applied to companies being wound up) or allowed them to be struck off the register and dissolved (so that the lease and liability for rates passed to the Crown as bona vacantia). The claimant local authorities sought to recover non-domestic rates from the defendants. Their first argument was that for the purposes of s 45(1)(b), ‘owner’ should be interpreted broadly to mean someone with a ‘real’ entitlement to possession (in this case, the defendants). Alternatively, they relied on Lord Sumption’s ‘evasion principle’ to argue that the corporate veil of the SPVs should be pierced and the defendants treated as the true owners of the hereditaments, so that they were liable for the rates. The Supreme Court accepted the first argument but rejected the second.


66. It is on [the evasion] principle which the local authorities seek to rely in these proceedings. They argue that, on the assumed facts, the defendants interposed companies under their control solely in order to avoid a liability for business rates that would in each case, but for the company’s separate legal personality, be a liability of the defendant. Counsel for the local authorities submitted that this was an abuse of the separate legal personality of the SPV which justifies the court in piercing the corporate veil to deprive the defendant of the advantage that it would otherwise have obtained by the SPV’s separate legal personality.

67. The first problem with this argument is that, even if the proposition of law relied on is sound, the defendants are not shareholders of the SPVs. On the agreed facts, each of the SPVs had a single shareholder, who was in each case an individual who was also the company’s director. Nonetheless it is pleaded that the SPVs were acquired by the defendants, and we will assume that, as ultimate beneficial owners, they might be shown at trial to have been in control of them, even though this conflicts with the finding in the PAG Management Services [2015] BCC 720 case that the SPVs there under review were controlled by the promoter of the scheme.

Forward and reverse piercing

68. More fundamentally, it is not clear to us that the evasion principle could ever enable the liability of a company to be extended to its shareholder or to some other person who controls it. p. 75In her judgment in Prest [2013] 2 AC 415 [2.12], para 92, Baroness Hale of Richmond JSC (with whom Lord Wilson JSC agreed) drew attention to a distinction, not discussed by Lord Sumption JSC, between two different situations which may be said to involve piercing the corporate veil. One is where the separate legal personality of the company is disregarded in order to obtain a remedy against the owner or the controller of the company in respect of a liability which would otherwise be that of the company alone. The other is the converse case, where it is sought to convert the personal liability of the owner or controller into a liability of the company. See also Edwin C Mujih, ‘Piercing the Corporate Veil: Where is the Reverse Gear?’ (2017) 133 LQR 322; and Christian Witting, ‘Piercing the Corporate Veil’ in Day and Worthington (eds), Challenging Private Law: Lord Sumption on the Supreme Court (2020), ch 17.

69. The two authorities identified by Lord Sumption JSC as cases in which the evasion principle was properly applied were both cases of the latter kind. In Gilford Motor Co Ltd v Horne [1933] Ch 935 Mr Horne, after leaving his employment with the plaintiff, formed a new company to compete with his previous employer in breach of an agreement by him not to do so. The Court of Appeal held that the new company was a mere channel used by Mr Horne to avoid his contractual obligation and granted an injunction against both him and the company to prevent them from competing with the plaintiff. Jones v Lipman [1962] 1 WLR 832 was a case of a similar kind. The defendant, Mr Lipman, agreed to sell a property to Mr Jones. However, before completion he changed his mind and transferred the property to a company which he had formed for the sole purpose of seeking to defeat Mr Jones’ right to specific performance. The judge made an order for specific performance not only against Mr Lipman but also against his company. In the case of the company, on Lord Sumption JSC’s analysis, this was justified by the evasion principle. In both cases there was a straightforward contractual liability on the owner of the company. The question was whether the company itself could be made liable.

70. Prest [2.12] was also a case of this type, albeit that it was held that the evasion principle was not engaged on the facts. The argument was that Mr Prest had put properties beyond the reach of his former wife by transferring the properties to companies controlled by him and that, on the wife’s claim for ancillary relief, an order should be made against the companies requiring them to transfer the properties to the wife.

71. Whether the evasion principle is needed or provides the best justification of cases such as Gilford Motor and Jones is itself open to debate. In his judgment in Prest [2013] 2 AC 415 Lord Neuberger of Abbotsbury PSC said that the decision in the Gilford Motor case that an injunction should be granted against the company was amply justified on the basis that the company was Horne’s agent for the purpose of carrying on the business (para 71); and that in Jones it was unnecessary to invoke the doctrine, as an order for specific performance against Lipman would have been sufficient by requiring him to procure that the company conveyed the property in question to the plaintiff (para 73). Baroness Hale JSC expressed the view that in such cases it is usually more appropriate to rely on the concepts of agency and of the directing mind. Lord Walker of Gestingthorpe questioned whether piercing the corporate veil is a coherent principle or rule of law at all, as opposed to simply a label used to describe the disparate occasions on which some rule of law produces apparent exceptions to the principle of the separate juristic personality of a corporate body (para 106). Although this is not the occasion for reaching any final view, we are inclined to share Lord Walker’s doubts.

72. Even if there is an ‘evasion principle’ which ‘may in a small residual category of cases’ (per Lord Sumption JSC) justify holding a company liable for breach of an obligation owed by its controlling shareholder, we are not ourselves convinced that there is any real scope for applying such a principle in the opposite direction so as hold a person who owns or controls a company liable for breach of an obligation which has only ever been undertaken by the company itself. At para 34 of his judgment in Prest [2.12], Lord Sumption JSC said:

‘It may be an abuse of the separate legal personality of a company to use it to evade the law or to frustrate its enforcement. It is not an abuse to cause a legal liability to be incurred p. 76by the company in the first place. It is not an abuse to rely on the fact (if it is a fact) that a liability is not the controller’s because it is the company’s. On the contrary, that is what incorporation is about.’

He went on to refer to VTB Capital plc v Nutritek International Corpn [2.17], where it was argued that the corporate veil should be pierced so as to make the controllers of a company jointly and severally liable on the company’s contract. Lord Sumption JSC said (at para 105) that:

‘[T]he fundamental objection to the argument was that the principle was being invoked so as to create a new liability that would not otherwise exist. The objection to that argument is obvious in the case of a consensual liability under a contract, where the ostensible contracting parties never intended that any one else should be party to it. But the objection would have been just as strong if the liability in question had not been consensual.’

73. That analysis, with which we respectfully agree, seems to us to leave very little room for reliance on the evasion principle to impose upon the controller of a company a fresh liability incurred by the company as distinct from its controller. But whether that is so or not, we think it clear that there is no scope for such a principle to operate in the present case. Liability for rates accrues from day to day. If the leases were effective to transfer the ownership of the demised properties for the purpose of the 1988 Act from the defendants to the SPVs (which is the premise on which the attempt to pierce the corporate veil becomes relevant), then in each case, from the date of the lease, the only person liable for business rates incurred thereafter was the SPV. Furthermore the interposition of the SPV had no effect at all on the liability of the landlord for rates up to the date of grant of the lease. Applying Lord Sumption JSC’s reasoning, it is not an abuse of the separate legal personality of the SPV to cause the liability for business rates to be incurred by the SPV by granting it a lease, nor to rely on the fact (if it is a fact) that the liability was not the defendant’s because it was the company’s. Nor can the evasion principle properly be invoked so as to create a liability on the part of the defendant that would not otherwise exist.

74. At the heart of the evasion principle, as explained by Lord Sumption JSC, is the necessary averment that the interposition of the company is, on the facts, an abuse of separate corporate personality. But if the rating legislation permits a landowner to transfer the ongoing liability for rates by granting a lease of the property to a wholly owned subsidiary created for the purpose, on terms which make the subsidiary the owner of it, then it is not per se an abuse of corporate personality to do so. The abuse in the present case lies in the way in which the SPV’s liability for rates is then sought to be dealt with, by the abusive processes by which the SPV is either dissolved or put into liquidation. The law provides comprehensive remedies for abusive behaviour of that kind, which do not require the piercing of any corporate veil.

75. In these circumstances the attempt by the local authorities in this case to invoke the ‘evasion principle’, or any principled development of it, is in our view wholly misplaced. The submissions made by counsel for the local authorities that, when a scheme lease was granted, the defendant was under an existing liability for business rates which it evaded by interposing a company are untenable and amounted to vain efforts to force a square peg into a round hole. The plain fact is that the lease did not avoid, nor even appear or seek to avoid, the liability for business rates which the defendant had incurred up to the date when the lease was granted: that liability on any view remained with the defendant. All that the lease did (if, contrary to our view on the assumed facts, effective for this purpose) was to transfer ownership of the property to a tenant who accordingly incurred the new liability for business rates which accrued for each day that the lease continued thereafter. It made no difference in terms of the liability for business rates whether the tenant was a company or an individual or whether, in circumstances where it was a company, the company was owned or controlled by the defendant.

p. 77 Questions

1. Would it have made any difference if the defendants had transferred pre-existing continuing liabilities to the SPVs?

2. Does the decision in Rossendale leave any room for the operation of the ‘evasion principle’ in practice?


One final but important comment is merited on ‘piercing the veil’. If the corporate veil were to be pierced, what remedies should be available to the outside third party who is then entitled to claim directly against the insider company member? This is not an easy question, although historically it has merited little attention. The reason it is difficult is that, with true ‘piercing’, the principle underpinning the court’s ‘piercing’ conclusion is at large (see Beatson LJ in Antonio Gramsci Shipping Corpn v Recoletos Ltd [2.13], cited earlier). This means that so too is the principle underpinning the remedy which should be awarded. By contrast, matters should be much clearer, and correspondingly more certain, when the members are sued under traditional orthodox and general legal principles (eg contract, tort, constructive trust, etc), as discussed later: see ‘Connections between the company and other persons’, p 78.

No authorities can be cited which are directly on point, but the next case is instructive. It is a Supreme Court decision predating Prest v Petrodel Resources Ltd [2.12], and for that reason some of the uncertainties it expresses are no longer apt. The extract here focuses solely on the court’s discussion of remedies, although even that is compromised, since the court was clearly of the view that ‘piercing the veil’ was quite inappropriate in any event.

Even if the corporate veil is pierced, the appropriate remedy is not necessarily one which sees the member ‘step into the shoes’ of the company.

[2.17] VTB Capital plc v Nutritek International Corpn [2013] UKSC 5 (Supreme Court)

The claimant (VTB) entered into a loan facility agreement with Russagroprom LLC (RAP) to fund the latter’s acquisition of six Russian dairy plants and three associated companies from the first defendant (Nutritek). Following RAP’s subsequent default on the loan, VTB alleged that it entered into the facility agreement in reliance on fraudulent misrepresentations made by Nutritek for which the other defendants were jointly liable. In particular, it claimed that RAP was in fact under the control of the defendants, and that, once the corporate veil was pierced, the defendants could be seen always to have been parties to the two agreements jointly with RAP and the guarantors. VTB could therefore claim damages in contract against the defendants. The Supreme Court, like the trial judge and the Court of Appeal, held that the claimant’s contract claim was unsustainable as a matter of law.


132. In so far as VTB invokes the principle of piercing the veil of incorporation, its case involves what, at best for its point of view, may be characterised as an extension to the circumstances where it has traditionally been held that the corporate veil can be pierced. It is an extension because it would lead to the person controlling the company being held liable as if he had been a co-contracting party with the company concerned to a contract where the company was a party and he was not. In other words, unlike virtually all the cases where the court has pierced the corporate veil, VTB is claiming that Mr Malofeev should be treated as if he were, or had been, a p. 78co-contracting party with RAP under the two agreements, even though neither Mr Malofeev nor any of the contracting parties (including VTB) intended Mr Malofeev to be a party.

[After examining the relevant cases:] … [F]‌ar from there being a strong case for the proposed extension, there is an overwhelming case against it.

138. First, it is not suggested by VTB that any of the other contracting parties under the two agreements is not liable. Indeed, as mentioned above, VTB’s proposed pleaded case is that Mr Malofeev is ‘jointly and severally liable with RAP’. Even accepting that the court can pierce the corporate veil in some circumstances, the notion of such joint and several liability is inconsistent with the reasoning and decision in Salomon [2.02]. …

139. Subject to some other rule (such as that of undisclosed principal), where B and C are the contracting parties and A is not, there is simply no justification for holding A responsible for B’s contractual liabilities to C simply because A controls B and has made misrepresentations about B to induce C to enter into the contract. This could not be said to result in unfairness to C: the law provides redress for C against A, in the form of a cause of action in negligent or fraudulent misrepresentation.

140. In any event, it would be wrong to hold that Mr Malofeev should be treated as if he was a party to an agreement, in circumstances where (i) at the time the agreement was entered into, none of the actual parties to the agreement intended to contract with him, and he did not intend to contract with them, and (ii) thereafter, Mr Malofeev never conducted himself as if, or led any other party to believe, he was liable under the agreement. That that is the right approach seems to me to follow from one of the most fundamental principles on which contractual liabilities and rights are based, namely what an objective reasonable observer would believe was the effect of what the parties to the contract, or alleged contract, communicated to each other by words and actions, as assessed in their context—see e.g. Smith v Hughes (1871) LR 6 QB 597, 607.

[Lord Neuberger then continued, dismissing the ‘undisclosed principal’ analogy, denying that RAP was being used as ‘a façade concealing the true facts’, or (which amounted to much the same thing) that Mr Malofeev was ‘abusing the corporate structure’.]

146. The proposed extension is all the more difficult to justify given that it is not needed to enable VTB to seek redress from Mr Malofeev. It is clear that, if VTB establishes that it was induced to enter into the agreements by the fraudulent statements which he is alleged to have made, then Mr Malofeev will be liable to compensate VTB. The measure of damages may be different, but that is not a particularly attractive reason for extending the principle in a new and unprincipled way. …

The theoretical problems associated with settling, in a principled way, on appropriate remedies if the corporate veil is pierced, and the implicit approach taken by the Supreme Court to these issues in both this case and Prest v Petrodel Resources Ltd [2.12], add considerable weight to the view that ‘piercing the corporate veil’ is no longer a real option. Instead, if outsiders want to look to those standing behind the company, then their claims must be based on alternative, traditional and orthodox legal principles. The potential options are considered in the next section.

Connections between the company and other persons

The cases discussed in this section illustrate orthodox means of establishing (or denying the establishment of) different types of legal relationships between the company and its members, or between members and outside parties. The purpose of establishing such p. 79non-corporate relationships is invariably to render the members directly liable to outside parties despite the intermediate corporate vehicle, or, alternatively, to make the company liable when usually only the member would be liable.

After Prest v Petrodel Resources Ltd [2.12], none of these mechanisms can be referred to as ‘piercing the corporate veil’: the corporate veil is not ignored; indeed, it is usually essential to the analysis that the company does exist, and has a particular relationship with its members (typically its sole shareholder or its holding company).

Control of the company is not enough

Control, even the absolute control that comes with ownership of 100 per cent of the company’s shares, is not enough of itself to suggest any legal relationship between the company and its owner-member (other than the company–shareholder relationship), and certainly none which will assist injured outsiders: see Salomon [2.02], Prest v Petrodel Resources [2.12] and Adams v Cape Industries [2.07].

Contractual agreements and third parties

Sometimes there is no need to rely on any special relationship between the company and its members. This is because members often contract directly with third parties. The members are then of course personally liable on these contracts. For example, parent companies in corporate groups (or individual owners of owner-managed companies) often agree with third parties that they will guarantee the obligations of the subsidiary (or owner-managed company). Indeed, the more undercapitalised the subsidiary, the more likely it is that counterparties such as banks and landlords will require this sort of reassurance, especially if the subsidiary company cannot provide its own security. The effect of such contracts is that the liability of the parent company/owner-manager member for the company’s debts is no longer limited (at least in relation to the debts which have been guaranteed), but this is a result of the member’s own independent contractual engagements, not any ‘veil piercing’ or particular corporate law rule.

Note, however, that care is needed in interpreting these contracts to assess what particular liabilities have been undertaken. ‘Letters of comfort’ are especially suspect: in Kleinwort Benson Ltd v Malaysia Mining Corpn Bhd [1989] 1 WLR 379, CA, the ‘comfort letter’ given by the parent company to the claimant bank was construed as excluding an intention to create legal relations.

Agency rules and third parties

The essence of a principal–agent relationship is not simply that the principal has control over the agent (although that is true), it is that the purpose of the principal–agent relationship is for the agent to do the legwork to deliver legal engagements between the principal and the third party, while the agent then drops out of the picture. We will see this in operation in Chapter 3, when directors (as the company’s agents) engage with third parties for the purpose of putting the company and the third parties (not the directors and third parties) in a contractual relationship.

If a principal/agent argument is to work as a means of enabling third parties to look to the members behind the company, insisting they are liable as the ‘principal’ in a relationship where the company is merely their ‘agent’, then special features must exist. Agency can of course be created by express agreement: see Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465, HL. But the issue in most of these cases is, absent such express agreement, when can a court infer an agency? That is rare.

p. 80Control (typically by the sole shareholder or holding company) is not enough.

[2.18] JH Rayner (Mincing Lane) Ltd v Department of Trade and Industry [1989] Ch 72 (Court of Appeal)

KERR LJ: The crucial point on which the House of Lords overruled the Court of Appeal in that landmark case [of Salomon [2.02]] was precisely the rejection of the doctrine that agency between a corporation and its members in relation to the corporation’s contracts can be inferred from the control exercisable by the members over the corporation or from the fact that the sole objective of the corporation’s contracts was to benefit the members. That rejection of the doctrine of agency to impugn the non-liability of the members for the acts of the corporation is the foundation of our modern company law.

Similarly, see Salomon [2.02], Prest v Petrodel Resources [2.12] and Adams v Cape Industries [2.07]. Also see Ebbw Vale UDC v South Wales Traffic Area Licensing Authority [1951] 2 KB 366, CA, at 370 (Cohen LJ).

The evidence of the agency relationship must be ‘overwhelming’.

[2.19] Bank of Montreal v Westgrowth Petroleums Ltd 1992 ABCA 94, (1992) 2 Alta LR (3d) 221 (Alberta Court of Appeal)

The claimant sought to use the principal/agent argument to make a parent company liable (as alleged principal) on a contract entered into by its wholly owned subsidiary (as alleged agent) where the directors and senior officers of the two companies were identical, meetings of the two boards of directors were held concurrently, audits were concurrent, the parent funded the subsidiary on generous terms and provided management services seemingly at no cost, and most of the dealings concerning the contract in issue were with the parent company personnel. Despite all this, no express or implied agency relationship was found.

CÔTÉ, JA (for the court):

6. In this case, we have a written contract which clearly says it is with one party, [the subsidiary]. In order to find that (in some way by agency or otherwise) it isn’t really with [the subsidiary], it’s really with [the parent], one would need pretty clear—possibly overwhelming—evidence of agency or something else. The evidence which has been pointed out to us is not of that nature. It is clear that it was [the subsidiary] which executed the contract in question. The Bank of Montreal sues only as assignee. The only assignment which we see is an assignment which purports only to be an assignment of a contract with [the subsidiary].

7. Leaving aside the legalities, there is a point of common sense. [English courts are unlikely to adopt such reasoning!] If the real intention of the parties (for example, through agency) were to have the ultimate party which really is liable as [the parent], then what the parties did would not make any sense. The parties deliberately switched things over and deliberately took [the parent’s mistakenly inserted] name off the draft contract and deliberately signed the contract in the name of [the subsidiary]. They must have had some reason for doing that.


It is common for a contract to provide that the purchaser can nominate some third party nominee to take legal title to the property on completion of the sale. This does not of itself suggest that the legal personalities of either can be ignored, or that there is an agency relationship, trust relationship or partnership between the nominator and nominee, even p. 81if both are in the same group of companies: see Attorney-General v Equiticorp Industries Group Ltd [1996] 1 NZLR 528.

An agency relationship between a company and its shareholders or controllers may, exceptionally, be inferred from the facts. But the likelihood is low. Usually there is simply insufficient evidence of what is seen as necessary consent to such an important legal arrangement: see Abbar v Saudi Economic & Development Co (SEDCO) Real Estate Ltd [2013] EWHC 1414 (Ch), where David Richards J found that no agency could be established on the facts, and emphasised, at [178], that ‘there is lacking the essential element of consent to the relationship of principal and agent which is necessary to a finding that the relationship has been established’.

One instance of such a finding of agency on the facts is, perhaps, Smith, Stone & Knight Ltd v Birmingham Corpn [1939] 4 All ER 116,32 where Atkinson J allowed a holding company to claim compensation as if it were an owner-occupier, on the ground that its subsidiary (which occupied the land in question) was merely its agent for the purpose of carrying on its business. This decision is, however, in marked contrast to Gramophone and Typewriter Co Ltd v Stanley [2.06] and to many other cases involving parent companies and their subsidiaries, and has been the subject of some criticism: see, for example, MA Pickering, ‘The Company as a Separate Legal Entity’ (1968) 31 MLR 481 at 494; and Toulson J in Yukong Line Ltd of Korea v Rendsburg Investments Corpn of Liberia (No 2) [1998] 1 WLR 294 [7.18]. Post Prest v Petrodel Resources Ltd [2.12], an analysis delivering the same conclusions would require a good deal more support.

Property law and third parties

The most typical concerns in this area are, first, with possible trust relationships between the company and its members, secondly, with possible unjust enrichment claims against members and, thirdly, with the scope of freezing orders. The relevant cases demonstrate very starkly the property and control consequences of separate legal personality.

Property held on trust

A trust relationship, with the company as trustee and the members as beneficiaries, may, exceptionally, be found to exist as a matter of fact. This does not depend on any special company law rule, but the conclusion can be advantageous to outsiders seeking remedies.

For example, in Prest v Petrodel Resources Ltd [2.12], the court concluded that certain houses (or the purchase money for their acquisition) had been transferred by the husband to his company for no consideration. The company therefore held the houses on resulting trust for the husband on normal equitable principles. This conclusion mattered, because if the husband was entitled to ‘possession or reversion’ of the houses within the terms of the Matrimonial Causes Act 1973 s 24(1), then the court had jurisdiction to order the husband to transfer them to the wife as part of the divorce settlement, which the court did. By contrast, if the houses had been legally and beneficially owned by the company, and the husband had merely owned the shares in the company—as is typically the case—then such an order could not have been made.33

This was the problem in Ben Hashem v Al Shayif [2008] EWHC 2380 (Fam), [2009] 1 FLR 115, where, as in Prest v Petrodel Resources, the husband displayed no impropriety in using a corporate vehicle to invest in property, and in any event he owned only 30 per cent of the shares in the relevant company. The court rejected an argument that the remaining shares were held on trust for him. It thus followed that the court could not make an order against p. 82either the husband or the interposed company ordering the transfer to the wife of the two apartments owned by the company.

Property relationships are not the exclusive domain of family cases, however. In Pennyfeathers Ltd v Pennyfeathers Property Co Ltd [2013] EWHC 3530 (Ch), it was held by Rose J that there was no need to pierce the corporate veil to deliver a remedy for directors’ clear breaches of fiduciary duty in diverting a corporate opportunity away from the company they directed. This was notwithstanding that the opportunity had been diverted to an interposed company rather than taken personally by the disloyal directors, and, moreover, that the wrongdoing directors did not own shares in, and were not directors of, the interposed company; instead, the shares in that company were owned by a trust of which the directors were the only beneficiaries. Rose J used the terminology of ‘concealment’ and ‘evasion’ in finding remedies against both the directors and the interposed company (see [116]–[119]). However, the straightforward analysis does not, it seems, depend on this at all (no detail was spelt out in the judgment). In particular, there is no need for recourse to ‘concealment’ or ‘evasion’, and most fiduciary disgorgement cases make no such claims. Here the defaulting directors were liable to disgorge their disloyal gains, whether owned legally or beneficially (see Chapter 7, ‘Duty to avoid conflicts of interest: CA 2006 s 175’, p 390). In addition, the interposed company took its own interest in the diverted opportunity subject to the equitable rights of the company to whom the directors owed their fiduciary duties. Here, the interposed company could not claim to be protected as a bona fide purchaser for value without notice: the facts on their face suggest full knowledge that the opportunity was diverted disloyally. Accordingly, the interposed company would also be liable to the claimant company for benefits knowingly received contrary to the claimant company’s interests (see Chapter 7, ‘Secondary liability (liability of third parties associated with directors’ wrongs)’, p 470).

Unjust enrichment

Similar care is needed in considering claims for restitutionary remedies in unjust enrichment. In MacDonald Dickens & Macklin v Costello [2011] EWCA Civ 930, [2012] QB 244, the claimant builders entered into a contract with the defendant company for the construction of houses on land which was owned by the company’s directors and shareholders (the first and second defendants). When the company failed to meet its liabilities, the claimants sued the directors and shareholders in unjust enrichment. The claim failed. Although these parties had been enriched, the enrichment was not unjust—it was the result of a perfectly proper contractual arrangement between the claimant and the company, and to hold otherwise would undermine the law of contract.

Freezing orders and restraint orders

In certain circumstances the court will order the ‘freezing’ of a person’s assets. Such freezing orders (formerly referred to as Mareva injunctions) are granted when the court perceives there is risk that defendants will move assets out of the jurisdiction, or otherwise spirit them away, and then be unable to meet the likely liability under a current or pending action in court. The court also has power to make a ‘restraint order’ under the Criminal Justice Act 1988 s 77, preventing a person from dealing with assets which are liable to be confiscated as the proceeds of crime.

The question has arisen as to whether a freezing order affects the assets of a company which is wholly owned by the defendant but not involved in the litigation. In earlier cases,34 it was held that such orders could extend to cover assets which were not owned by the defendant but were owned by companies which the defendant controlled.

p. 83The current standard form freezing order (set out in Appendix 11 of the Admiralty and Commercial Courts Guide) extends to assets legally and/or beneficially owned by the defendant and assets ‘which [the defendant] has the power, directly or indirectly, to dispose of or deal with as if it were his own’. In Group Seven Ltd v Allied Investment Corpn Ltd [2013] EWHC 1509 (Ch), [2014] 1 WLR 735, Hildyard J held that a debt owed to the defendant’s solely owned company did not fall within this extended definition of ‘assets’, and so when the defendant, acting on behalf of the company, compromised its claim for recovery of the debt, he did not act in breach of the freezing order. In reaching this conclusion, the judge highlighted an important feature of the way in which companies act (whether controlled by a sole shareholder or not) (see [64]–[70]): such companies are not given ‘directions’ by their controllers (typically the directors, but perhaps the sole shareholder); these controllers’ acts are the company’s acts for such purposes.

In Lakatamia Shipping Co Ltd v Su [2014] EWCA Civ 636, [2015] 1 WLR 291, the Court of Appeal held that a freezing order in the standard form did not directly prevent the defendant’s wholly owned company from dealing in its assets, but that any disposal of the company’s assets other than in its ordinary course of business would fall foul of the freezing order as this could well diminish the value of the defendant’s own assets, namely his shareholding in the company. It approved the approach taken in Group Seven and held that the extended definition of ‘assets’ within the standard form order was not intended to catch the assets of a company controlled by the defendant but only assets held by a third party where the defendant is beneficially entitled to them (see the judgments of Tomlinson LJ at [30]–[31], Sir Bernard Rix at [41]–[42] and Rimer LJ at [47]–[51]). This approach is entirely consistent with the emphasis on separate legal personality as the foundation of corporate law (as seen earlier in Salomon [2.02], Macaura [2.03] and Lee v Lee’s Air Farming [2.05]).

However, the Supreme Court’s decision in JSC BTA Bank v Ablyazov [2015] 1 WLR 4754 casts some doubt on the approach taken in Group Seven and Lakatamia. The defendant had entered into loan agreements with companies in the British Virgin Islands (BVI), which were essentially his ‘creatures or conduits’. The agreements provided that the loan facility of £10 million was to be disbursed ‘on the borrower’s written request’, the proceeds of the loan facility were to be used ‘at the borrower’s sole discretion’ and ‘the borrower may direct the lender to transfer the proceeds of the loan facility to any third party’. The court rejected the idea that the extended definition of ‘assets’ in the standard form order was only ever intended to apply to ‘the defendant’s assets’. Rather, it was ‘designed to catch assets which are not owned legally or beneficially [by the defendant], but over which the defendant has control’ ([46]). The BVI companies were contractually bound to disburse the loan monies in accordance with the defendant’s instructions, which meant that although he did not own the companies’ assets, he had the power to dispose of, or deal with them as if they were his own, and so they were caught by the freezing order.

It remains to be seen how, in the light of Ablyazov, the courts will deal with a claim that the extended definition of ‘assets’ catches the assets of a company wholly owned by the defendant. It may be possible for defendants to distinguish Ablyazov from its facts on the basis that the companies were contractually obliged to act in accordance with the defendant’s instructions in such a way as to allow him to deal with those assets on his own behalf and for his own ends. Arguably, this is different from a scenario like that in Group Seven where no such obligation exists and the claimant is simply asking the court to look through the company’s separate legal personality and treat its assets as belonging to its controlling shareholder (see the submissions by counsel for the defendant in Group Seven [2014] 1 WLR 735 at [62](7) and (8)).

p. 84Tort law and third parties

As we saw earlier with contract, sometimes there is no need to discover any special relationship between the company and its members to make those members liable to external third parties. The general law itself may provide for a direct relationship between the insider ‘members’ (typically a parent company within a corporate group) and the outsider third parties, thus enabling those outsiders to make claims directly against the members.

There are statutes which adopt this approach. This is typically the case in competition law, for example, which, for obvious reasons, focuses on ‘undertakings’ or ‘economic units’ rather than on each of the individual elements in a large corporate group: Case T-11/89 Shell International Chemical Co Ltd v Commission, ECLI:EU:T:1992:33, para 311.

Tort law too is amenable to such claims. The insider—typically the parent company—may simply be directly liable to the injured claimant on ordinary tort principles. This direct approach is seen to good effect in Chandler v Cape plc [2012] EWCA Civ 525, CA (part of the ongoing Cape litigation encountered in [2.07]). Here the court applied orthodox negligence principles to hold that a parent company owed a duty of care to the employee of a (now dissolved) subsidiary company. In delivering the judgment of the court, Arden LJ ‘emphatically reject[ed] any suggestion that this court is in any way concerned with what is usually referred to as lifting the corporate veil’ ([69]). Instead, she approached the question purely from the tortious angle of ‘assumption of responsibility’.

The approach taken in Chandler was endorsed by the Supreme Court in Vedanta Resources plc v Lungowe [2019] UKSC 20, [2020] AC 1045 [3.17]. The case concerned Vendanta’s liability for the alleged negligence of its Zambian subsidiary to prevent personal injury and property damage arising out of environmental damage cause by its mining activities. Lord Briggs JSC confirmed (at [49]) that the liability of parent companies in relation to the activities of their subsidiaries is not, of itself, a distinct category of liability in negligence. Whether a duty of care arises depend on:

The extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations (including land use) of the subsidiary.

In addition, there is no general principle to the effect that a parent company could never incur a duty of care in respect of its subsidiary’s activities merely by laying down group-wide policies and guidelines with which the subsidiary is expected to comply, as such guidelines ‘may be shown to contain systemic errors which, when implemented as of course by a particular subsidiary, then cause harm to third parties’ ([52]). And even where group-wide policies do not of themselves give rise to a duty of care, they may do so if the parent takes active steps (eg by training, supervision and enforcement) to see that they are implemented by subsidiaries or where the parent merely holds itself out in published materials as ‘exercising that degree and supervision and control of its subsidiaries’, even if it does not do so ([53]). The Supreme Court concluded that on the facts it was arguable that the parent company had exercised a sufficient level of control over the activities of its Zambian subsidiary so as to make it liable in negligence to the claimants.

In HRH Okpabi v Royal Dutch Shell plc [2021] UKSC 3, the Supreme Court adopted and applied the principles described in Vedanta. On this basis, it found that there was a real issue to be tried as to whether the UK incorporated parent company of the Shell group owed a duty of care to Nigerian citizens in respect of water and ground contamination caused by persistent oil leaks from pipelines and infrastructure operated by its Nigerian subsidiary.

These modern examples stand in stark contrast to older cases which typically reach their desired ends by unnecessary resort to ‘piercing the corporate veil’. Jennings v Crown p. 85Prosecution Service [2008] UKHL 29, [2008] AC 1046 may illustrate the point. There the court pierced the veil to convict an employee of conspiracy to defraud and prevent him from disposing of property obtained by fraud. The fraud consisted of persuading people to pay fees to a company for the arrangement of loans, knowing that no loans would ever be made. But piercing the veil was not necessary to reach these ends. The employee was the company’s agent. Where an agent’s acts constitute a crime or a tort (here, deceit), it is no defence for the agent to say the acts were committed on behalf of someone else.35 It would not matter whether the agent acted for a human or a corporate principal.

Statutory rules and third parties

Statutory rules could of course render members (or directors) directly liable to outside parties if the company itself fails those outsiders in some regard. But the power of the Salomon [2.02] principle means that ‘clear and unequivocal language’ would be needed: Dimbleby & Sons Ltd v National Union of Journalists [1984] 1 WLR 427, HL, at 435 (Lord Diplock). For example, in Campbell v Peter Gordon Joiners Ltd [2016] UKSC 38, [2016] AC 1513 an employee of a company controlled by a sole director was injured at work. The company did not have in place appropriate insurance. This failure constituted a breach by the company of its statutory duty and a criminal offence. The company was insolvent and the claimant sought compensation from the director. The Supreme Court held that the relevant statute imposed direct responsibility on the company as employer only, although the director was ‘deemed to be guilty’ of the offence committed by the company if he had consented to or facilitated by neglect the company’s commission of the offence. The majority held that as the statute dealt with this by imposing a criminal penalty rather than direct responsibility equivalent to that of the company, no intention to impose any civil liability could be inferred, and so the claim against the director failed.

More typically, statutes are focused on making the companies themselves liable to outsiders, or—more rarely—enabling companies to sue their insiders.

The first of these approaches was seen in operation in Daimler Co Ltd v Continental Tyre and Rubber [2.10], a case concerned with ‘enemy aliens’. Recall that the court there used certain nominated characteristics of the company’s members to determine a characteristic of the company, being its ‘enemy alien’ status. We can now note that this approach does not involve either ‘veil piercing’ or reliance on general (non-company-specific) legal rules. It is simply the court (or, where relevant, a statute) defining the rule of attribution which will determine how, for the purposes of the particular legal context, a given rule will apply to the company. These attribution rules are dealt with in detail in Chapter 3.

By contrast, some statutes are again unconcerned with the injured outsiders, but instead ensure that the company has claims against its insiders. This does not ‘pierce the veil’ at all, and indeed is a purely bilateral issue between company and insider, although any damages award paid to the company will enhance the company’s ability to meet its liabilities to the injured outsiders. The CA 2006, for example, makes directors and other officers liable to the company for company wrongs (see Chapter 7). Similarly, the insolvency legislation contains a number of sections providing for directors (and others) to be personally liable to the company. So too the Company Directors Disqualification Act 1986 (CDDA 1986).

p. 86Summary

Since the separate personality of companies is fundamental to the structure of company law, there are a wide variety of illustrations of the impact of the doctrine. The cases noted in this chapter are primarily directed at illuminating the essence of separate corporate personality and illustrating the exceptional circumstances in which the company’s members may be liable for the company’s failings. But it is important not to leave this area without appreciating that the normal rule is that the company is its own person, and this feature has a fundamental impact on engagements between the company and third parties.

By way of illustration, later in this book we consider the company and its engagements with its promoters (those who set up the company), its directors and its auditors. All these parties owe their duties to the company, not to the individuals concerned with the company, unless there are special circumstances giving rise to separate duties: see ‘Promoters and their dealings with the company’, pp 478–479ff; ‘Directors’ duties are owed to the company’, pp 337ff; ‘Auditors’ common law liability’, pp 600ff.

Equally, when the company acts, the procedures it must adopt so that the actions of human agents (directors, members, employees, etc) count as the actions of the company are determined by the company’s constitution (assisted by certain statutory and common law rules designed to protect third parties in their dealings with the company): see ‘Agency and authority in corporate contracting’, pp 97ff.

All these matters are dealt with later, but mentioned here by way of reinforcing the key point of this chapter, which is that companies are separate legal entities.

Further reading

  • ARMOUR, J, ‘Corporate Personality and Assumption of Responsibility’ [1999] LMCLQ 246.
  • LORD COOKE OF THORNDON, ‘A Real Thing’ in Turning Points of the Common Law (1996 Hamlyn Lectures, 1997).
  • DAY, W, ‘Skirting Around the Issue: The Corporate Veil after Prest v Petrodel’ [2014] LMCLQ 269.
  • DIGNAM, A and OH, PB, ‘Disregarding the Salomon Principle: An Empirical Analysis, 1885–2014’ (2019) 39 OJLS 16.
  • EASTERBROOK, FH and FISCHEL, DR, The Economic Structure of Corporate Law (1991), ch 2 ‘Limited Liability’.
  • FLANNIGAN, R, ‘The Economic Structure of the Firm’ (1995) 33 Osgoode Hall Law Journal 105.
  • FREEDMAN, J, ‘Limited Liability: Large Company Theory and Small Firms’ (2000) 63 MLR 317.
  • GOUDKAMP, J, ‘Duties of Care and Corporate Groups’ (2017) 133 LQR 560.
  • HANSMANN, H and KRAAKMAN, RH, ‘The Essential Role of Organizational Law’ (2000) 110 Yale Law Journal 387 at 387–404.
  • HANSMANN, H and KRAAKMAN, RH, ‘Toward Unlimited Liability for Corporate Torts’ (1991) 100 Yale Law Journal 1879.
  • HICKS, A, ‘Corporate Form: Questioning the Unsung Hero’ [1997] JBL 306.
  • IRELAND, P, ‘Triumph of the Company Legal Form 1856–1914’ in J Adams (ed), Essays for Clive Schmitthoff (1983), p 29.
  • MANDARAKA-SHEPPARD, A, ‘New Trends in Piercing the Corporate Veil: The Conservative Versus the Liberal Approaches’ (2014) 35 Business Law Review 2.
  • MUJIH, E, ‘Piercing the Corporate Veil: Where is the Reverse Gear?’ (2017) 133 LQR 322.
  • SEALY, LS, ‘Perception and Policy in Company Law Reform’ in D Feldman and F Meisel (eds), Corporate and Commercial Law (1996), pp 11–29.
  • WITTING, C, ‘Piercing the Corporate Veil’ in W Day and S Worthington (eds), Challenging Private Law: Lord Sumption on the Supreme Court (2020), ch 17.
  • WOLFF, W, ‘On the Nature of Legal Persons’ (1938) 54 LQR 494.
  • Notes

    • 1 There is a considerable body of writing on the theory, or theories, of corporate personality. No attempt has been made to select material representing the various schools of thought for inclusion in this book. For the interested reader, the following are amongst the best-known writings in English on the subject: FW Maitland, Introduction to Gierke’s Political Theories of the Middle Age (1900); M Radin, ‘The Endless Problem of Corporate Personality’ (1932) 32 Columbia Law Review 643; AA Berle and GC Means, The Modern Corporation and Private Property (1932); RH Coase, ‘The Nature of the Firm’ (1937) 4 Economica NS 386; M Wolff, ‘On the Nature of Legal Persons’ (1938) 54 LQR 494; HLA Hart, ‘Definition and Theory in Jurisprudence’ (1954) 70 LQR 37, 45ff; MC Jensen and WH Meckling, ‘Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure’ (1976) 3 J Fin Econ 305; M Stokes, ‘Company Law and Legal Theory’ in W Twining (ed), Legal Theory and Common Law (1986); DD Prentice, ‘The Theory of the Firm: Minority Shareholder Oppression: Sections 459–461 of the Companies Act 1985’ (1988) 8 OJLS 55; CA Riley, ‘Contracting Out of Company Law: Section 459 of the Companies Act 1985’ (1992) 55 MLR 782; FH Easterbrook and DR Fischel, ‘The Corporate Contract’ (1989) 89 Columbia Law Review 1416; WW Bratton, ‘The New Economic Theory of the Firm: Critical Perspectives from History’ (1989) 41 Stan L Rev 1471; R Flannigan, ‘The Economic Structure of the Firm’ (1995) 33 Osgoode Hall Law Journal 105; BR Cheffins, Company Law: Theory, Structure and Operation (1997).

    • 2 In this sense ‘person’ can, eg, include such inanimate entities as a fund (Arab Monetary Fund v Hashim (No 3) [1991] 2 AC 114, [1991] BCLC 180, HL), or a Hindu temple (Bumper Development Corpn Ltd v Metropolitan Police Comr [1991] 1 WLR 1362, CA). Note that neither a fund nor a temple is regarded as a corporation under English law, where typically corporate personality is recognised only in a group, a municipality or an office (eg the Crown). In the two cases referred to, the court was applying the accepted rule of the conflict of laws which states that the question whether or not a group or entity should be accorded corporate status is to be decided by the law of the jurisdiction in which it is situated or domiciled.

    • 3 H Hansmann and R Kraakman, ‘The Essential Role of Organizational Law’ (2000) 110 Yale Law Journal 387, esp 393–395; H Hansmann, R Kraakman and R Squire, ‘Law and the Rise of the Firm’ (2006) 119 Harvard Law Review 1333, esp 1337–1356.

    • 4 The centenary of Salomon’s case was marked by a number of conferences and publications. See, eg, CEF Rickett and RB Grantham (eds), Corporate Personality in the Twentieth Century (1998), and a series of articles in (1998) 16 C & SLJ.

    • 5 This expression is used descriptively. The ‘private company’ was first made the subject of separate statutory provision in the Companies Act 1907.

    • 6 The report reads ‘£30,000’, but this is plainly an error. The figure of £20,000 appears in other reports of the case, eg 66 LJ Ch 35 at 49.

    • 7 This means that the sum of £10,000 was advanced by Salomon to the company as a loan, secured by a charge over the assets of the company.

    • 8 In Re Baglan Hall Colliery Co (1870) LR 5 Ch App 346, Giffard LJ states that it ‘is the policy of the Companies Act to enable business people to incorporate their businesses and so avoid incurring further personal liability’.

    • 9 [1978] Fam 181, [1979] 1 All ER 801.

    • 10 An ordinary resolution is now sufficient in all cases: CA 2006 s 168.

    • 11 See Chapter 4, ‘Dividing corporate power between members and directors’, p 185; and Chapter 9, ‘Company claims and the statutory derivative action: CA 2006 ss 260ff’, p 490.

    • 12 Unless there is some legal reason why they too should be made liable. The following cases discuss some of the options, but see especially ‘Connections between the company and other persons’, p 78.

    • 13 [1977] AC 774 at 807.

    • 14 Of course, in appropriate circumstances the ‘members’ may be liable on other perfectly orthodox legal grounds: see ‘Connections between the company and other persons’, p 78.

    • 15 See Companies Act 1993 (New Zealand), s 271; Companies Act 2014 (Ireland), s 600. At present, this can be done in England only with the approval of the prescribed statutory majorities of the creditors concerned, by a scheme of arrangement under CA 2006 ss 895ff, or, in special circumstances, under the ‘power to compromise’ conferred on liquidators and the court by IA 1986 s 167(1) and Sch 4. For an example of the latter, see Re Bank of Credit and Commerce International SA (No 3) [1993] BCLC 1490.

    • 16 Richmond upon Thames London Borough Council v Pinn & Wheeler Ltd [1989] RTR 354 (cannot be a lorry driver); Newstead v Frost [1980] 1 WLR 135 at 139, HL (cannot be a television entertainer or author).

    • 17 Note that the company must be party to the proceedings here if the individuals are to have their individual rights protected effectively. Similarly, other company law procedures—even statutory ones—may need to be conducted in particular ways so as not to infringe the human rights of the individuals concerned. See, eg, Saunders v UK (1996) 23 EHRR 313, and ‘Inspections and subsequent fair trials—criminal and civil cases’, p 808.

    • 18 Also see ‘Company claims and the statutory derivative action: CA 2006 ss 260ff’, p 490 on derivative actions generally.

    • 19 Article 6 of the Convention was invoked in R (Alconbury Developments Ltd) v Secretary of State for the Environment, Transport and the Regions [2001] UKHL 23, [2003] 2 AC 295.

    • 20 R (North Cyprus Tourism Centre Ltd) v Transport for London [2005] EWHC 1698 (Admin).

    • 21 This is the rule in English law and most other legal systems, but in others domicile may be determined by reference to some other factor such as the company’s principal place of business. In some jurisdictions a corporate body is not recognised as having a domicile at all. Under the rules of private international law, the law of the domicile regulates questions relating to the validity of the company’s incorporation, its dissolution, the effect of a merger, its capacity and the rights and liabilities of its members (including limited liability). It is not possible under UK law for a company to transfer its incorporation and domicile to another jurisdiction, as is the case in many other countries.

    • 22 Other cases show that the ‘central management and control’ of a company may in fact be divided, so that its residence is in more than one country: see, eg, Union Corpn Ltd v IRC [1952] 1 All ER 646, CA, affd on other grounds [1953] AC 482, HL.

    • 23 (1876) 1 Ex D 428.

    • 24 (1876) 1 Ex D 428.

    • 25 See the discussion in Chapter 3 and the important cases of Meridian Global Funds Management Asia Ltd v Securities Commission [3.01] and Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [3.30].

    • 26 Collins Steward Ltd v Financial Times Ltd [2005] EWHC 262 (QB), eg, held that a corporation cannot have hurt feelings.

    • 27 Where corporate personality is ascribed to a group of persons, such as a limited liability company, a chartered body such as a university, or a municipality such as a city or borough, it is referred to as a ‘corporation aggregate’. Where the law personifies an office occupied by a single person (eg the Crown, the Bishop of Ely), it is customarily called a ‘corporation sole’.

    • 28 For historical accounts, see A Samuels, ‘Lifting the Veil’ [1964] JBL 107; MA Pickering, ‘The Company as a Separate Legal Entity’ (1968) 31 MLR 481; CM Schmitthoff, ‘Salomon in the Shadow’ [1976] JBL 305; S Ottolenghi, ‘From Peeping behind the Corporate Veil to Ignoring it Completely’ (1990) 53 MLR 338; Lord Cooke of Thorndon, ‘A Real Thing’ in Turning Points of the Common Law (1996 Hamlyn Lectures, 1997) and ‘Corporate Identity’ (1998) 16 C & SLJ 160. For more recent discussions, see Further Reading at the end of this chapter.

    • 29 See E Mujih, ‘Piercing the Corporate Veil: Where is the Reverse Gear?’ (2017) 133 LQR 322; and Rossendale Borough Council v Hurstwood Properties (A) Ltd [2.16] at [68].

    • 30 Lord Cooke of Thorndon, Turning Points of the Common Law (1996 Hamlyn Lectures, 1997), p 17.

    • 31 Contrast this with a finding that a particular transaction is a sham: see the discussion in Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld [2009] EWCA Civ 280, [2009] BCC 687, noted in Note 1 following Lee’s case [2.05], p 46.

    • 32 Also see Re FG (Films) Ltd [1953] 1 WLR 483 (Ch), where the relationship was characterised as agency, but only in a throwaway line.

    • 33 The husband could of course have been ordered to transfer his shares to his wife, but his chain of ownership was obscure, and the companies were controlled in Nigeria, so the practical advantage to the wife was thought to be minimal.

    • 34 Eg International Credit and Investment Co (Overseas) Ltd v Adham [1998] BCLC 134; Re H (Restraint Order: Realisable Property) [1996] 2 BCLC 500.

    • 35 Standard Chartered Bank v Pakistan National Shipping Corpn (No 2) [2002] UKHL 43, [2003] 1 AC 959, HL [3.19]; Stone & Rolls Ltd (In Liquidation) v Moore Stephens (A Firm) [2009] UKHL 39, [2009] 1 AC 1391, HL [3.28].

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