[Slide 7] Salomon v A Salomon & Co Ltd (1897) Facts The company went bankrupt when the business failed. The company didn`t have sufficient assets to pay its unsecured creditors. Liquidators of the company sued the individual shareholder, Salomon. Issue – Was Salomon obliged to pay the debt? Decision – No Reasoning The House of Lords held that a corporation is an entity separate from its members. Only the corporation held the debt; the individual shareholders did not hold the debt. If a company fails to pay its debts, the person to be sued is the company, not its members. [Slide 12] Gilford Motor Co v Horne (1933) Facts Mr Horne was an ex-employee of the Gilford motor company and his employment contract provided that he could not solicit the customers of the company. In order to defeat this, he incorporated a limited company in his wife`s name and solicited the customers of the company. The company brought an action against him. Issue – Did court lift the corporate veil against the company set up by Horne? Decision – Yes Reasoning The court was satisfied that the company was formed by Horne for the purpose of avoiding liability under the agreement. The court noted that while a company usually has its own separate legal identity, the company “was formed as a device, a strategem, in order to mask the effective carrying on of business of Mr Horne”, in which it was clear that the main purpose of incorporating the new company was to perpetrate fraud. [Slide 12] Adams v Cape Industries plc(1990) Facts The plaintiffs obtained a judgment against Cape an English registered company in the American courts. As Cape had no assets left in the US, they then sought to enforce the judgment against the parent company in the group in the English courts. The plaintiffs sought to ignore the separate legal personality of a parent (Cape) and its subsidiary company and to hold the parent company liable for the obligations of the subsidiary. Issue – Did court lift the corporate veil against Cape? Decision – No Reasoning The court concluded that although Cape`s motives in dealing its US its business through its various subsidiaries was to try to minimise its presence in the US to avoid tax and other liabilities and “that that might make the company morally culpable, but there was nothing legally wrong with this”. [Slide 12] Prest v Petrodel Resources Ltd (2013) Facts Wife asked the court to lift the corporate veil to procure the transfer of seven properties legally owned by two companies within the Petrodel Group, which is controlled by the husband, in partial satisfaction of the lump sum to the wife. Issue – Was there abuse of corporate form? Decision – No Reasoning The court held that there was no evidence that the husband had been seeking to conceal or evade any legal obligations to his wife. There was legal interest in properties vested in company long before the marriage broke up. The properties had been acquired before the companies had their own resources to do so.
[Slide 22] Saudi Al Jubail Admiralty in Rem No 399 of 1984 Facts The Plaintiff entered into a charterparty with Cargo Carriers Ltd (CCC) in respect of the plaintiff’s vessel (The Fidelity) - Charterparty: A written contract between the owner of a vessel and the one (the charterer) desiring to empty the vessel setting forth the terms of the arrangement, i.e., freight rate and ports involved in the contemplated trip. The plaintiffs arrested The Saudi Al Jubail in a sister-ship action. To succeed, Plaintiffs had to show that the charterer of The Fidelity was the beneficial owner of The Saudi Al Jubail. - Sister-ship action: the arrests of another ship belonging to the same owner. The Saudi Al Jubail was apparently owned by Omega Shipping Co Ltd (OSC) The plaintiffs alleged that both CCC and OSC were controlled by one Orri. However as it transpired, CCC did not actually exist Issue – Was there abuse of corporate form? Decision – Yes Reasoning Orri did not keep the companies separate from one another or from his own personal affairs. The court therefore concluded that Orri was the beneficial owner of the Saudi Al Jubail, notwithstanding that it was nominally owned by OSC. The court lifted the corporate veil on the basis that the company was a sham or façade where Orri used the company as an extension of himself and makes no distinction between the company`s business and his own. [Slide 22] Children`s Media Pte Ltd and Others v Singapore Tourism Board (2009) Facts STB had agreed to sponsor an event called Listen Live, which was to be staged in Singapore by the defendants, Children's Media Limited ("CML"), Tribute Third Millennium Limited ("Tribute") and Anthony David Hollingsworth ("Tony Hollingsworth"). Tony Hollingsworth was a director and CEO of both CML and Tribute. Tribute is the sole member and guarantor of CML whilst Tony Hollingsworth is the sole shareholder of Tribute. Shortly after the signing of the agreement, the defendants informed STB that they were cancelling the event, but refused to refund the sponsorship monies which STB had paid for the staging of Listen Live. Issue – Were the companies used as a façade or sham? Decision – Yes Reasoning The court found that two companies were “no more than corporate puppets compliantly dancing to the tune” of their common CEO and that the CEO “treated their assets as his own”. Given that the companies were used as a façade and sham to siphon off money for the CEO, the court pierced the corporate veil and made the CEO personally liable to reimburse monies paid in good faith to the companies. [Slide 21] Armagas Ltd v Mundogas SA (1986) Facts Amidst apparent fraud, an agent (Magelssen on behalf of Mundogas) purported to conclude an agreement leasing a ship back from its buyer (the principal - Mundogas) for a period of 3 years The agent only had actual authority to conclude an agreement which lasted for 1 year The agent claimed that he had obtained specific authority for the transaction The agent was appointed as the principal’s chartering manager Issue – Was the principal bound by the agreement? Decision – No Reasoning The House of Lords suggested that there is no such thing as a “self authorising agent.” For apparent authority to operate, the representation as to the agent`s authority must come from the principal and not from the agent. Principal not liable for agent`s false representations The agent’s title of ‘chartering manager’ did not bring with it the apparent authority to conclude the contract or represent specific authorization
[Slide 22] Royal British Bank v Turquand (1856) Facts The company could only borrow such sums as were authorized by a general resolution of the company. The company borrowed money. When sued, they pleaded that a proper resolution had not been passed. Issue – Was the company bound? Decision – Yes Reasoning A party dealing with the company in good faith is entitled to assume that all matters of internal requirements and procedures have been complied with. (Indoor`s management rule / rule in Turquand`s case) The company will consequently be bound by the contract even if the internal requirements and procedures have not been complied with. [Slide 23] Northside Developments Pty Ltd v Registrar-General (1990) Facts ND mortgaged its lands to Barclays. The mortgage was executed under the company`s common seal, signed by a director (Robert Sturgess) and counter-signed by a company secretary. The articles were not complied with as the company secretary had not been properly appointed. The other directors also had no knowledge of the mortgage and had not authorised the director to affix the company seal. The mortgage was given to secure a loan made to other companies controlled by Robert Sturgess and in which ND had no interest. When Barclays exercised its power of sale as mortgagee after the mortgagor defaulted, ND argued that it did not execute the mortgage. Issue – Whether ND was bound by the mortgage? Decision – No Reasoning Barclays should have been put to inquiry and that it had failed to carry out inquiries. The nature of transaction was such as to put Barclays to inquiry, which is, the purpose of the transaction was not for the benefit of ND. Dawson J also held that the transaction was outside the apparent authority of Robert Sturgess. [Slide 23] Banque Bruxelles Lambert v Puvaria Packing Industries (Pte) Ltd (1994) Facts Directors of PPI undertook a loan from BBL (bank) which they had no authority to do, and were in breach of their fiduciary duty to the company. Issue – Whether the debts incurred were void because they were ultra vires the company? Decision – No Reasoning The bank had no notice that Papan was not acting for PPI`s purpose when he entered into the transaction on its behalf. The transactions looked like an ordinary business deal among companies within the same group; in fact, it might have been said that the transaction was for the apparent benefit of all three companies involved. Hence, BBI was not put on inquiry as to Papan`s authority. *Papan – MD and majority of shareholder in PPI; borrowed money from bank on behalf of PPI
