5/8/2011 Company Law I Lecture 4:Piercing the Corporate Veil Limited liability and separate entity doctrines in reality ·How things are“in reality"? Hypo case:application of the separate entity principle Is there any injustice? 1
5/8/2011 1 Company Law I Lecture 4: Piercing the Corporate Veil 1 Limited liability and separate entity doctrines in reality • How things are “in reality”? • Hypo case: application of the separate entity principle • Is there any injustice? 2
5/8/2011 Responses to the effects(or problems)of separate entity doctrine ·“Piercing the corporate veil'" 。Meaning Piercing or non-piercing cases Case study Gilford Motor Co v Horne [1933]Ch 935 Horne agreed not to steal customers from Gilford after leaving employment Horne set up JM Horne Co Mrs.Horne and employee were sole s/ers and directors Co did steal Gilford's customers Lord Hanworth MR:co was "a mere device for enabling Horne to continue to commit breaches...". Injunction issued against both Horne and JM Horne Co. 2
5/8/2011 2 Responses to the effects (or problems) of separate entity doctrine • “Piercing the corporate veil” Meaning Piercing or non-piercing cases 3 Case study Gilford Motor Co v Horne [1933] Ch 935 • Horne agreed not to steal customers from Gilford after leaving employment • Horne set up JM Horne & Co • Mrs. Horne and employee were sole s/ers and directors • Co did steal Gilford’s customers • Lord Hanworth MR: co was “a mere device for enabling Horne to continue to commit breaches …”. • Injunction issued against both Horne and JM Horne & Co. 4
5/8/2011 Jones v Lipman and Another [1962]1 WLR 832 House owner transferred to a wholly owned co to avoid going through with promised sale Russell J:"the defendant co is the creature of the first defendant,a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity." Specific performance ordered against both Lipman and the co Russell J:"the proper order to make is an order on both the defendants specifically to perform the agreement between the plaintiffs and the first defendant." Any alternative remedy? What is the similarity between Gilford Motor Co v Horne and Jones v Lipman? What is the difference between two cases? What is the test used in both cases? Were the relationships created in each case by the incorporation of the companies a real "sham"? 3
5/8/2011 3 Jones v Lipman and Another [1962] 1 WLR 832 • House owner transferred to a wholly owned co to avoid going through with promised sale • Russell J: “the defendant co is the creature of the first defendant, a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity.” • Specific performance ordered against both Lipman and the co • Russell J: “the proper order to make is an order on both the defendants specifically to perform the agreement between the plaintiffs and the first defendant.” • Any alternative remedy? 5 • What is the similarity between Gilford Motor Co v Horne and Jones v Lipman? • What is the difference between two cases? • What is the test used in both cases? • Were the relationships created in each case by the incorporation of the companies a real “sham”? 6
5/8/2011 ·What is the meaning of“sham"? Oxford English Dictionary: >A"mask"is "a covering worn on or held in front of the face for disguise”. >A sham is "something that is intended to be mistaken for something else,or that is not really what it purports to be". Snook v London and West Riding Investments Ltd [1967]1AWER518: >Lord Diplock:acts done or documents executed by the parties to the 'sham'which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations(if any)which the parties intended to create. Common law Special circumstances indicating that the company is a mere facade concealing the true facts:eg Adams v Cape Industries Pic [1990]Ch 433,Eng CA DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976]1 WLR 852 Woolfson v Strathclyde Regional Council [1978]SC(HL)90,HL Toptrans v Delta Resources Co Inc (2005),CFI ·What is the meaning of“a mere facade concealing the true facts"? 4
5/8/2011 4 • What is the meaning of “sham”? Oxford English Dictionary: A “mask” is “a covering worn on or held in front of the face for disguise”. A sham is “something that is intended to be mistaken for something else, or that is not really what it purports to be”. Snook v London and West Riding Investments Ltd [1967] 1 All ER 518: Lord Diplock: acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intended to create. 7 Common law • Special circumstances indicating that the company is a mere facade concealing the true facts: eg Adams v Cape Industries Pic [1990] Ch 433, Eng CA DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852 Woolfson v Strathclyde Regional Council [1978]SC(HL) 90, HL Toptrans v Delta Resources Co Inc (2005), CFI • What is the meaning of “a mere facade concealing the true facts”? 8
5/8/2011 Fraud HKSAR v Leung Yat Ming(1999) Co used to perpetrate fraud. 2 academics(husband and wife)received rent allowance from employer on condition that the accommodation was not owned by them or their relatives. H acquired a company which purchased an apartment and which then rented the apartment to H and W. H and W convicted under the Prevention of Bribery Ordinance(Cap 201). 。 Corporate form ignored on the ground that H and W had financial interests in the property. Held:permissible to go behind the corporate veil where it was a cloak for deception. Agency How to set up a contractual relationship of agency? Express agency -Implied agency Co can act as agent of another co(including a s/h) 10 5
5/8/2011 5 Fraud HKSAR v Leung Yat Ming (1999) • Co used to perpetrate fraud. • 2 academics (husband and wife) received rent allowance from employer on condition that the accommodation was not owned by them or their relatives. • H acquired a company which purchased an apartment and which then rented the apartment to H and W. • H and W convicted under the Prevention of Bribery Ordinance (Cap 201). • Corporate form ignored on the ground that H and W had financial interests in the property. • Held: permissible to go behind the corporate veil where it was a cloak for deception. 9 Agency • How to set up a contractual relationship of agency? - Express agency - Implied agency • Co can act as agent of another co (including a s/h) 10