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The Legal issues arising from the following problems are that of; lifting the corporate veil
principle, the single economic entity doctrine, what is regarded as a separate Legal Personality
and also what type of relationship parent (holding) companies have with their subsidiaries.
A company is a legal person separate from its members, as can be seen in what is regarded the
most famous case in company law Salomon v. Salomon and Co. Ltd.1 This therefore means
that the companies debts, assets and responsibilities are also not the shareholders or directors
debts, assets and responsibilities, similarly in a group enterprise, the parent company (Autocar
limited.) and its subsidiary companies (Murtex limited, Jaxspeed limited and Cloverleaf limited)
are two separate legal entities which have distinct, independent legal rights and liabilities.
However while the doctrine of corporate personality is well established2, in appropriate cases
courts are entitled at common law3 to disregard it and instead look behind the corporate person
to its real controllers,4 usually for the purpose of ascribing some liability to them. This is
commonly referred to as the court "piercing"5 or "lifting"6the corporate veil7, described by Lord
Sumption as "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 control8
Salomon v. Salomon (Facts and Judgement) 9 the effect of the Lords' unanimous ruling was to
uphold firmly the doctrine of corporate personality, as set out in the Companies Act 1862, so that
1

Salomon v. Salomon and Co. Ltd. (1897) A.C 22].

Salomon v Salomon & Co Ltd [1897] A.C. 22 HL; Lee v Lees Air Farming Ltd [1961] A.C. 12
PC (New Zealand).
2

Concerned principally with veil piercing at common law and not where a statute expressly or
impliedly (as a result of the policy of the legislation) allows such piercing.
4

Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 N.S.W.L.R. 254 at 264.

For example, see Alex Lobb (Garages) Ltd v Total Oil GB [1985] 1 W.L.R. 173 CA (Civ Div) at
178.
6

Creasey v Breachwood Motors Ltd [1993] B.C.L.C. 480 QBD at 491.

Tan Cheng-Han, Veil Piercing- A Fresh Start [2015] Journal of Business Law 2015

Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 3 W.L.R. 1 at [16]; see note by Ernest
Lim, "Salomon Reigns" (2013) 129 L.Q.R. 480.
9

In Solomon v. Salomon and Co. Ltd. Mr Solomon run his boot making company as a sole
trader and one day decided he would incorporate it in order to allow his other family member
shares in the company, he therefore sold it to a company incorporated for the purpose and
called it A Solomon and Co ltd for 39,000 with part of the purchase price used by Mr Solomon
to subscribe himself for 20,000 shares in the company, however 10,000 of the purchase price
was not paid to him by the company instead the company issued him with a series of
debentures and gave him a floating charge on its assets as security, unfortunately the

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creditors of an insolvent company could not sue the company's shareholders to pay up outstanding
debts10.

Just as A Solomon and Co Ltd was held separate to Mr Solomon it seems Autocar can be
regarded as being totally separate from their subsidiary companies, however this is not always
clear cut, it is possible to show that both the parent company and the subsidiary companies are
linked somehow, and if this can be shown claims against subsidiary companies can climb their
way up to the parent company. Big companies such as Ford often have wholly owned
subsidiary companies just for the purpose of avoiding liability, this is totally legal and happens
today, for example Ford have a 8% ownership of Aston Martin who in turn have a 50%
ownership in Aston Martin Racing Ltd and wholly own Lagonda Ltd, this will mean bringing a
claim against Lagonda ltd is going to be significantly different to brining one against Ford in
terms of Pay-out because Ford is a billion dollar company in comparison to Lagonda.
In the similar way that a person can own a company and be separate from it due to the
doctrine of corporate personality, so can another company, just as Autocar has done with
(Murtex limited, Jaxspeed limited and Cloverleaf limited), it may be that Autocar has done this in
order to take advantage of the principle of limited liability just as Arron Solomon inadvertently
companys business failed and the company went into liquidation, Mr Solomon was now able to
have the assets covered by the charge applied to the payment of the debts secured by the
charge subsequently leaving nothing for the other creditors.
The companys liquidator argued that rather than let Mr Solomon take the money from his
company, he should be made responsible for paying all the debts, just as he would have if he
had carried on to run his business as a sole trader, the liquidator wanted the court to apply the
principle of lifting the corporate veil where it would be seen that Mr Solomon and A Salomon
and Co Ltd are one in the same and therefore equally responsible for the debts, this would
effectively ignore the fact that Mr Solomon had sold his business to a separate person. The
Court of appeal (sub nom Broderip v Solomon) established that incorporation in this instance
was fraudulent and was contrary to the true intent and meaning of the Companies Act 1862
however the House of Lords reversed this decision and reiterated what Giffard LJ had said in an
earlier case (Re Baglan Hall Colliery Co) that it was the policy of the Companies Act to
enable people in business to incorporate in order to avoid further personal liability, Lord
Macnaghten added when the memorandum is duly signed and registeredthe subscribers are
the body corporate capable forthwith; to use the words of the enactment, of exercising all the
functions of an incorporate company he didnt understand how a body corporate thus made
capable by statute can lose its individuality by issuing the bulk of its capital to one person.

10

Facts of Salomon v Salomon >

http://self.gutenberg.org/articles/Salomon_v._Salomon_%26_Co. > Accessed 10/03/2015

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did, if this is the case the claims Murtex limited are facing can also be faced by Autocar Limited
if the court are able to penetrate the corporate veil as recognized in Gilford Motor Co. Ltd v.
Home11, the courts will usually pierce the veil where a company is used to evade ones
obligations, in Gilford the defendant MR E B Horne, attempted to evade a covenant not to
compete with the claimant12, Lord Hanworth said I am quite satisfied that this company was
formed as a device, a stratagem, in order to mask the effective carrying on of a business of Mr
E B Horne.
The precedent set in Gilford was effectively follows in Johns v Lipman13 where Russell J
ordered specific performance of the contract of sale because Mr Lipman before selling land to
another transferred it to a company of which he and a nominee were the sole shareholders and
directors14, Russell J was able to do this because an order of specific performance could be
made against Mr Lipman because (Lord Cook in his Hamlyn Lecture states) the company was
in the vendors control, there was no difficulty in granting a degree of specific performance
against him15
In light of these two cases a claimant can therefore force the court to treat Autocar and Murtex
Limited as one of the same if they can show that Autocar are using Murtex Limited as Russell J
states in Jones v Lipman The defendants company (Murtex Ltd) is the creature of the first
defendant (Autocar Ltd), a device and a sham, a mask which he holds before his face in an
attempt to avoid recognition by the eye of equity16.
However in other cases, the courts have adopted a more liberal approach to this doctrine, in the
case DHN food Distributors Ltd v. Tower Hamlets London Borough Council17 there was
controversy over whether the separate personalities of companies in a group of companies may
be ignored18, on one hand there is the view that each company in a group is a separate entity
as exemplified in The Albazero19 however a year after the court of appeals decision in The
Albazero the court of appeal took a totally different approach in DHN v Tower Hamlets, the case
concerned a long standing problem of compensation on the compulsory purchase of land where
11

Gilford Motor Co. Ltd v. Home [1933] Ch 935 (CA)

12

D French, S Mayson and C Ryan, Company Law (30th edn, OUP 2013) 137.

13

Johns v Lipman [1962] 1 WLR 832

14

D French, S Mayson and C Ryan, Company Law (30th edn, OUP 2013) 136.

15

The Hamlyn Lectures: Turning Points of the Common Law (1997)

16

L Sealy and S Worthington, Cases and Materials in Company Law (8th edn, OUP 2008) 63.

17

DHN food Distributors Ltd v. Tower Hamlets London Borough Council [1976] 1 WLR 852 (CA)

18

D French, S Mayson and C Ryan, Company Law (30th edn, OUP 2013) 144.

19

The Albazero [1977] AC 774

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the land has belonged to one company in group but the business carried out on the land has
been the business of another company within the group which thus occupied the land as tenant
or licence. Companies in situations like these usually do not draw up long term leases, so until
DHN it was thought that the subsidiary company would not be entitled to compensation in terms
of disturbance of business because it could have been evicted from the property at short notice
anyway20(Melias Ltd v Manchester Corporation21. Smith, Stone and Knight Ltd v
Birmingham Corporation22 was an exceptional case in which it was established that the
business carried on by a subsidiary company of a parent company was actually business
carried out by the parent company and so the parent company could claim compensation for
disturbance of business.
Lord Denning known for his liberal standpoint upheld the Parent companys claim for
compensation by stating these subsidiary companies are bound hand and foot to the parent
company and must do just what the parent company says...this group is virtually the same as
partners, in Australia Lord dennings words have been interpreted as meaning that the
separate personalities of companies in a particular group can be ignored only if there is in fact
or in law a partnership between23 them (Young J) in Pioneer Concrete services Ltd v Yelnah
Pty Ltd24, the meaning of partnership is subject to section 1(1) Partnership Act 189025. Lord
Goff stated it is important to rely to the particular facts of the case when deciding as was done in
DHN this is a case in which one is entitled to look at the realities of the situation and to pierce
the corporate veil26 In Woolfson v Strathclydale Regional Council27, the house of lords
made sure to say that the crucial factor in the DHN was that the company operating the
business had complete control over the land owning company (which was its wholly owned
subsidiary and it also had the same directors). Woolfson was distinguished in the following
ways, firstly Mr Woolfson owned 999 shares while his wife owned 1 but not as nominee for him,
the company also carried on the business on adjacent premises which were compulsory
purchased from Solfred Holdings Ltd, whose shares were also owned by the two shareholders.
Lord Keith of Kinkel said here, on the other hand, the company that carried on the business, Mr
Campbell, has no sort of control whatsoever over the owners of the land, Solfred and

20

D French, S Mayson and C Ryan, Company Law (30th edn, OUP 2013) 145.

21

Melias Ltd v Manchester Corporation [1972] 23 P & CR 380

22

Smith, Stone and Knight Ltd v Birmingham Corporation [1939] 4 All ER 116

23

Lord Justice Young

24

Pioneer Concrete services Ltd v Yelnah Pty Ltd [1986] 5 NSWLR 254

25

Partnership Act [1890]

26

DHN food Distributors Ltd v. Tower Hamlets London Borough Council [1976] 1 WLR 852 (CA)

27

Woolfson v Strathclydale Regional Council [1978] SC (HL) 90

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Woolfson.28 It was therefore held that Woolfson and Solfred were not entitled to compensation
for business disturbance.
One of the most crucial differences between the two cases was that it was probably possible to
show that the majority of directors that sat on the DHN board also sat in the subsidiary
company, therefore it is can be said that if Autocar have a significant number of directors on
the Murtex board then a link can be shown through the control mechanism recognized in DHN,
it is important that the directors sitting on the subsidiary company is a significantly high number
because the argument can be made that for example if one director is sat on the board, he can
claim to be just a nominee director, sitting just to make sure the company is run smoothly,
nonetheless if 6 directors where sat on the board an argument can be made that the holding
company is in consistent control of the subsidiary and any claim against the subsidiary can
easily find its way climbing the liability ladder ensuring the claimant a better chance of getting a
large amount of compensation money from the holding company for the subsidiarys companys
negligence.
Over time, the liberal approach applied in DHN has been less popular, and the importance of it
was considerably reduced by a subsequent comment on it by the court of appeal in Adams v
Cape Industries plc29 where the courts made it clear that the law does not look with similar
disfavour on the formation of a limited liability company in order to confine the future or
contingent liabilities of an enterprise within specific limits30.
Adams Cape industries showed that the law recognises the creation of subsidiary companies,
and even though they are under the control of their parent companies, they will generally be
treated as separate legal entities. This was also shown in Gentor APC Ltd v Dalby31 and
followed in Trustor AB v Smallbone (No 2)32 the principle arising from these two cases is that
although it is not appropriate for a court to pierce the corporate veil mere because a company is
involved in some impropriety, it is entitled to do so when the latter is used as a device or faade
to conceal the true facts and the liability of the responsible individuals
Considering the issues portrayed above the better view is that Autocar Limited will most likely
not be held liable for any claims against Murtex Limited.

28

Lord Keith of Kinkel

29

Adams v Cape Industries plc [1990] Ch 433

30

L Sealy and S Worthington, Cases and Materials in Company Law (8th edn, OUP 2008) 63.

31

Gentor APC Ltd v Dalby [2000] 2 BCLC 734

32

Trustor AB v Smallbone [2001] 1 WLR 1177

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Bibliography

Cases
Adams v Cape Industries Plc [1990] Ch 433 (CA)
Beckett Investment Management Group Ltd v Hall [2007] EWCA Civ 613
Bristol & West Building Society v Mothew [1998] Ch 1 (CA)
Creasey v Breachwood Motors Ltd [1993] B.C.L.C. 480 QBD at 491.
DHN Food Distributors v Tower Hamlets LBC [1976] 1 WLR 852 (CA)
Ebbw Vale UDC v South Wales Traffic Area Licencing Authority [1951] 2 KB 366 (CA)
Gilford Motor Co v Horne [1933] Ch 935 (CA)
Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443 (Assizes)
Jones v Lipman [1962] 1 WLR 832 (ChD)
Lee v Lees Air Farming [1961] AC 12 (PC)
Littlewoods Mail Order Stores v Inland Revenue Commissioners [1969] 1 WLR 1241 (CA)
Macaura v Northern Assurance Co Ltd [1925] AC 619 (HL)
Newton-Sealy v Armstrong Services Ltd [2008] EWHC 233 (QB)
Ord v Belhaven Pubs Ltd [1998] 2 BCLC 447 (CA)
Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 N.S.W.L.R. 254 at 264.
Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 3 W.L.R. 1 at [16
Salomon Reigns (2013) 129 L.Q.R. 480.
Salomon v A Salomon & Co. Ltd. [1897] AC 22 (HL)
Smith Stone & Knight Ltd v Birmingham DC [1939] 4 All ER 116 (KBD)
Stenhouse Australia v Phillips [1974] AC 391 (PC).
The Albazero [1977] AC 774 (CA)
Woolfson v Strathclyde RC 1978 SC (HL) 90
Books

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Sealy L and Worthington S, Cases and Materials in Company Law (8th edn, OUP 2008)
French D, Mayson S and Ryan C, Company Law (30th edn, OUP 2013)
Legislation
Companies Act 2006 ss. 123, 170-179, 256, 1162
Companies Act 1862
Insolvency Act 1986 s.143
Enterprise Act 2002 s.251
Partnership Act 1890
Websites
Facts of Salomon v Salomon >
http://self.gutenberg.org/articles/Salomon_v._Salomon_%26_Co. > Accessed 10/03/2015
Articles
P T Muchlinski, Holding Multinationals to Account: Recent developments in English
Litigation and the Company Law Review [2002] 23 Company Lawyer 168
S Ottolenghi, From peeping behind the corporate veil, to ignoring it completely [1990] 53 MLR
338
K V Krishnaprasad, Agency, limited liability and the corporate veil [2011] 32(6) Company
Lawyer 163
Tan Cheng-Han, Veil Piercing- A Fresh Start [2015] Journal of Business Law 2015