Corporate Identity
UK Cases
Sutton’s Hospital (1612)
77 Eng Rep 960
Sir Edward Coke wrote
“ And it is great reason that an Hospital in expectancy or intendment, or nomination, shall be sufficient to support the name of an Incorporation, when the Corporation itself is onely in abstracto, and resteth onely in intendment and consideration of the Law; for a Corporation aggregate of many is invisible, immortal, & resteth only in intendment and consideration of the Law; and therefore[1] cannot have predecessor nor successor.[2] They may not commit treason, nor be outlawed, nor excommunicate, for they have no souls, neither can they appear in person, but by Attorney.[3] A Corporation aggregate of many cannot do fealty, for an invisible body cannot be in person, nor can swear,[4] it is not subject to imbecilities, or death of the natural, body, and divers other cases. ”
Salomon v Salomon & Co Ltd
[1896] UKHL 1
the House of Lords’ unanimously upheld the doctrine of corporate personality under the Companies Act 1862.
Lord Halsbury LC wrote
“I have no right to add to the requirements of the statute, nor to take from the requirements thus enacted. The sole guide must be the statute itself…
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, who is often referred to as Soloman. 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.
It is obvious to inquire where is that intention of the Legislature manifested in the statute. 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.”
Lord Macnaghten wrote.
“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…
…Among the principal reasons which induce persons to form private companies, as is 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.
If, 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 Company, Limited, 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, and they must be taken to have been cognisant of the memorandum and of the articles of association. For such a catastrophe as has occurred in this case some would blame the law that allows the creation of a floating charge. But a floating charge is too convenient a form of security to be lightly abolished. I have long thought, and I believe some of your Lordships also think, that the ordinary trade creditors of a trading company ought to have a preferential claim on the assets in liquidation in respect of debts incurred within a certain limited time before the winding-up. But that is not the law at present. Everybody knows that when there is a winding-up debenture-holders generally step in and sweep off everything; and a great scandal it is.[7]
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 authorized 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. It was said that the assets were sold by an order made in the presence of Mr. Salomon, though not with his consent, which declared that the sale was to be without prejudice to the rights claimed by the company by their counter-claim. I cannot see what difference that makes. The reservation in the order seems to me to be simply nugatory.”
Macaura v Northern Assurance Co Ltd
[1925] AC 619 Lord Sumner wrote
“ 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. ”
Gilford Motor Co Ltd v Horne
[1933] Ch 935 Mr Horne was formerly a managing director of the Gilford Motor Co Ltd. His employment contract require that he not to solicit customers of the company if he were to leave employment. He ceased to be employed and established company JM Horne & Co Ltd, in which his wife and another were the sole shareholders and directors. Mr. Horne sent out fliers
“ Spares and service for all models of Gilford vehicles…. No connection with any other firm. ”
Gilford Motor claimed that the company was used as an instrument of fraud to conceal Mr Horne’s actions illegitimate actions. The Court of Appeal confirmed an injunction, against Horne to enforce the covenant. Hanworth MR wrote
“ I am quite satisfied that this company was formed as a device, a stratagem, in order to mask the effect carrying on of a business of Mr EB Horne. The purpose of it was to enable him, under what is a cloak or sham, to engage in business which, on consideration of the agreement… ”
Lawrence LJ and Romer LJ concurred.
Lee v Lees Airs Farming Limited
[1960] UKPC 33 the plaintiff’s deceased husband was held entitled to workman’s compensation as an insured worker of a company of which was the almost sole owner. The Privy Council advised that she was entitled to compensation as the company was a separate legal person. Lord Morris of Borth-y-Gest said
“ 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…
It is 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…”
There appears to be no great difficulty in holding that a man acting in one capacity can make a contract with himself in another capacity. The company and the deceased were separate legal entities.
Jones v Lipman
[1962] 1 WLR 832 the defendant contracted to sell a house. He changed his mind and refused to complete. In order to avoid enforcement, he transferred to a company incorporated for that purpose alone, of which he was sole shareholder. Russell J ordered specific performance and wrote
“The defendant company 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.”
Tunstall v Steigmann
[1962] 2 QB 593 Ormerod LJ wrote
“ [A departure from Salomon required…] ‘that a company and the individual or individuals forming a company were separate legal entities, however complete the control might be by one or more of those individuals over the company…. any departure… has been made to deal with special circumstances when a limited company might well be a facade concealing the true facts. ”
Littlewoods Mail Order Stores v IRC
[1969] 1 WLR 1241 Denning MR wrote
“The doctrine laid down in Salomon v Salomon has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts cannot see. But that is not true. The courts can and often do draw aside the veil. They can, and often do, pull off the mask. They look to see what really lies behind.”
Wallersteiner v Moir
[1974] 1 WLR 991 Lord Denning MR wrote
“ I am prepared to accept that the English concerns — those governed by English company law or its counterparts in Nassau or Nigeria — were distinct legal entities. I am not so sure about the Liechtenstein concerns — such as the Rothschild Trust, the Cellpa Trust or Stawa A.G. There was no evidence before us of Liechtenstein law. I will assume, too, that they were distinct legal entities, similar to an English limited company. Even so, I am quite clear that they were just the puppets of Dr. Wallersteiner. He controlled their every movement. Each danced to his bidding. He pulled the strings. No one else got within reach of them. Transformed into legal language, they were his agents to do as he commanded. He was the principal behind them. I am of the opinion that the court should pull aside the corporate veil and treat these concerns as being his creatures – for whose doings he should be, and is, responsible”.
Woolfson v Strathclyde Regional Council
[1978] UKHL 5 Lord Keith wrote
“The position there was that compensation for disturbance was claimed by a group of three limited companies associated in a wholesale grocery business. The parent company, D.H.N., carried on the business in the premises which were the subject of compulsory purchase. These premises were owned by Bronze, which had originally been the wholly owned subsidiary of a bank which had advanced money for the purchase of the premises, but which had later become the wholly owned subsidiary of D.H.N. Bronze had the same directors as D.H.N. and the premises were its only asset. It carried on no activities whatever. The third company, also a wholly owned subsidiary of D.H.N., owned as its only asset the ……..
It was held by the Court of Appeal (Lord Denning M.R., Goff and Shaw LL. J.) that the group was entitled to compensation for disturbance as owners of the business. The grounds for the decision were (1) that since D.H.N. was in a position to control its subsidiaries in every respect, it was proper to pierce the corporate veil and treat the group as a single economic entity for the purpose of awarding compensation for disturbance; (2) that if the companies were to be treated as separate entities, there was by necessary implication from the circumstances an agreement between D.H.N. and Bronze under which the former had an irrevocable licence to occupy the premises for as long as it wished, and that this gave D.H.N. a sufficient interest in the land to found a claim to compensation for disturbance and (3) (per Goff and Shaw LL.J.) that in the circumstances Bronze held the legal title to the premises in trust for D.H.N., which also sufficed to entitle D.H.N. to compensation for disturbance. It is the first of those grounds which alone is relevant for present purposes.
I have some doubts whether in this respect the Court of Appeal properly applied the principle that it is appropriate to pierce the corporate veil only where special circumstances exist indicating that is a mere façade concealing the true facts. Further, the decisions of this House in Caddies v Harold Holdsworth & Co (Wake-field) Ltd 1955 S.C. (H.L.) 27 and Meyer v Scottish Co-operative Wholesale Society Ltd 1958 S.C. (H.L.) 40, which were founded on by Goff L.J. in support of this ground of judgment and, as to the first of them, to some extent also by Lord Denning, M.R., do not, with respect, appear to me to be concerned with that principle. ………. Here, on the other hand, the company that carried on the business, Campbell, has no sort of control whatever over the owners of the land…… In my opinion there is no basis consonant with principle upon which on the facts of this case the corporate veil can be pierced to the effect of holding Woolfson to be the true owner of Campbell’s business or of the assets of Solfred. ”
Lords Wilberforce, Fraser and Russell and Dundy agreed.
Adams v Cape Industries plc
[1990] Ch 433
Slade LJ (for Mustill LJ and Ralph Gibson LJ) wrote
“ 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 deprive 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 (save in the case of A.M.C. to which special considerations apply) to expect that the court would apply the principle of Salomon v A Salomon & Co Ltd [1897] AC 22 in the ordinary way. ”
Prest v Petrodel Resources Ltd
[2013] UKSC 34 Lord Sumption wrote
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. The controller may be personally liable, generally in addition to the company, for something that he has done as its agent or as a joint actor. Property legally vested in a company may belong beneficially to the controller, if the arrangements in relation to the property are such as to make the company its controller’s nominee or trustee for that purpose. For specific statutory purposes, a company’s legal responsibility may be engaged by the acts or business of an associated company. Examples are the provisions of the Companies Acts governing group accounts or the rules governing infringements of competition law by “firms”, which may include groups of companies conducting the relevant business as an economic unit. Equitable remedies, such as an injunction or specific performance may be available to compel the controller whose personal legal responsibility is engaged to exercise his control in a particular way. 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 & Co Ltd,[13] 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.
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, to which the International Court of Justice was referring in In re Barcelona Traction, Light and Power Co Ltd[14] when it derived from municipal law a limited principle permitting the piercing of the corporate veil in cases of misuse, fraud, malfeasance or evasion of legal obligations. These examples illustrate the breadth, at least as a matter of legal theory, of 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:[15]
“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…”
The principle is mainly familiar in the context of contracts and other consensual arrangements, in which the effect of fraud is to vitiate consent so that the transaction becomes voidable ab initio. But it has been applied altogether more generally, in cases which can be rationalised only on grounds of public policy, for example to justify setting aside a public act such as a judgment, which is in no sense consensual, a jurisdiction which has existed since at least 1775.[16] Or to abrogate a right derived from a legal status, such as marriage.[17] Or to disapply a statutory time bar which on the face of the statute applies.[18] 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.
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. 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.
52. Whether assets legally vested in a company are beneficially owned by its controller is a highly fact-specific issue. It is not possible to give general guidance going beyond the ordinary principles and presumptions of equity, especially those relating to gifts and resulting trusts. But I venture to suggest, however tentatively, that in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company. In many, perhaps most cases, the occupation of the company’s property as the matrimonial home of its controller will not be easily justified in the company’s interest, especially if it is gratuitous. The intention will normally be that the spouse in control of the company intends to retain a degree of control over the matrimonial home which is not consistent with the company’s beneficial ownership. Of course, structures can be devised which give a different impression, and some of them will be entirely genuine. But where, say, the terms of acquisition and occupation of the matrimonial home are arranged between the husband in his personal capacity and the husband in his capacity as the sole effective agent of the company (or someone else acting at his direction), judges exercising family jurisdiction are entitled to be sceptical about whether the terms of occupation are really what they are said to be, or are simply a sham to conceal the reality of the husband’s beneficial ownership.
Lord Neuberger wrote
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….”
Lady Hale wrote
92. I am 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. They may simply be examples of the principle that the individuals who operate limited companies should not be allowed to take unconscionable advantage of the people with whom they do business. But what the cases do have in common is that the separate legal personality is being disregarded in order to obtain a remedy against someone other than the company in respect of a liability which would otherwise be that of the company alone (if it existed at all). In the converse case, where it is sought to convert the personal liability of the owner or controller into a liability of the company, it is usually more appropriate to rely upon the concepts of agency and of the “directing mind”.
93. What we have in this case is a desire to disregard the separate legal personality of the companies in order to impose upon the companies a liability which can only be that of the husband personally. This is not a liability under the general law, for example for breach of contract. It is a very specific statutory power to order one spouse to transfer property to which he is legally entitled to the other spouse. The argument is that that is a power which can, because the husband owns and controls these companies, be exercised against the companies themselves. I find it difficult to understand how that can be done unless the company is a mere nominee holding the property on trust for the husband, as we have found to be the case with the properties in issue here. I would be surprised if that were not often the case.
Lord Mance while agreeing with his fellow Lords, stated that future possible circumstances situations where the veil could be pierced should not be closed.
Lord Walker concluded
106. … for my part I consider that ‘piercing the corporate veil’ is not a doctrine at all… It is simply a label… to describe the disparate occasions on which some rule of law produces apparent exceptions to the principle of the separate juristic personality of a body corporate… These may result from a statutory provision, or from joint liability in tort, or from the law of unjust enrichment, or from principles of equity and the law of trusts…
VTB Capital plc v Nutritek International Corp
[2013] UKSC Lord Neuberger wrote
“ 120. We were referred to a number of cases where courts have either granted relief on the basis of piercing the corporate veil, or where courts have proceeded on the assumption, or concluded, that there is power to do so. The only case in that connection in the House of Lords, or Supreme Court, to which we were referred, was Woolfson v Strathclyde Regional Council 1978 SLT 159, a case where, on the facts, the House of Lords had no difficulty in rejecting an argument that the corporate veil could be pierced. At 1978 SLT 159, 161, Lord Keith suggested that the court could only take such a course “where special circumstances exist indicating that [the involvement of the company] is a mere façade concealing the true facts”.
122. The starting point for the argument that the principle does not exist is the well known decision in Salomon v A Salomon & Co Ltd [1897] AC 22. There is great force in the argument that that case represented an early attempt to pierce the veil of incorporation, and it failed, pursuant to a unanimous decision of the House of Lords, not on the facts, but as a matter of principle. Thus, at 30-31, Lord Halsbury LC said that a “legally incorporated” company “must be treated like any other independent person with its rights and liabilities appropriate to itself …, whatever may have been the ideas or schemes of those who brought it into existence”. He added that it was “impossible to say at the same time that there is a company and there is not.”
123. The notion that there is no principled basis upon which it can be said that one can pierce the veil of incorporation receives some support from the fact that the precise nature, basis and meaning of the principle are all somewhat obscure, as are the precise nature of circumstances in which the principle can apply. Clarke J in The Tjaskemolen [1997] 2 Lloyd’s Rep 465, 471 rightly said that “[t]he cases have not worked out what is meant by ‘piercing the corporate veil’. It may not always mean the same thing” (and to the same effect, see Palmer’s Company Law, para 2.1533). Munby J in Ben Hashem seems to have seen the principle as a remedial one, whereas Sir Andrew Morritt V-C in Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177 appears to have treated the principle as triggered by the finding of a “façade”.
124. The “façade” mentioned by Lord Keith is often regarded as something of a touchstone in the cases – e.g. per Munby J in Ben Hashem, para 164, and per Sir Andrew Morritt V-C in Trustor, para 23. Words such as “façade”, and other expressions found in the cases, such as “the true facts”, “sham”, “mask”, “cloak”, “device”, or “puppet” may be useful metaphors. However, such pejorative expressions are often dangerous, as they risk assisting moral indignation to triumph over legal principle, and, while they may enable the court to arrive at a result which seems fair in the case in question, they can also risk causing confusion and uncertainty in the law. The difficulty which Diplock LJ expressed in Snook v London and West Riding Investments Ltd [1967] 2 QB 786, 802, as to the precise meaning of “sham” in connection with contracts, may be equally applicable to an expression such as “façade”.
125. Mr Lazarus argued that in all, or at least almost all, the cases where the principle was actually applied, it was either common ground that the principle existed (Gilford Motor Co Ltd v Horne [1933] Ch 935, Re H (restraint order: realisable property) [1996] 2 BCLC 500, and Trustor) and/or the result achieved by piercing the veil of incorporation could have been achieved by a less controversial route – for instance, through the law of agency (In re Darby, Ex p Brougham [1911] 1 KB 95, Gilford, and Jones v Lipman [1962] 1 WLR 832), through statutory interpretation (Daimler Company Ltd v Continental Tyre and Rubber Company (Great Britain) Ltd [1916] 2 AC 307, Merchandise Transport Ltd v British Transport Commission [1962] 2 QB 173, Wood Preservation Ltd v Prior [1969] 1 WLR 1077, and Re A Company [1985] BCLC 333), or on the basis that, as stated by Lord Goff in Goss v Chilcott [1996] AC 788, 798, money due to an individual which he directs to his company is treated as received by him (Gencor ACP Ltd v Dalby [2000] 2 BCLC 734, and Trustor).
126. In summary, therefore, the case for Mr Malofeev is that piercing the corporate veil is contrary to high authority, inconsistent with principle, and unnecessary to achieve justice.
127. I see the force of this argument, but there are points the other way. I am not convinced that all the cases where the court has pierced the veil can be explained on the basis advanced by Mr Lazarus. Further, as Mr Howard QC said, the fact is that those cases were decided on the basis of piercing the veil. More generally, it may be right for the law to permit the veil to be pierced in certain circumstances in order to defeat injustice. In addition, there are other cases, notably Adams v Cape Industries plc [1990] Ch 433, where the principle was held to exist (albeit that they include obiter observations and are anyway not binding in this court). It is also difficult to explain the first instance decision in Kensington International Ltd v Republic of the Congo [2005] EWHC 2684 (Comm), [2006] 2 BCLC 296 on any basis other than the principle (but I am not at all sure that the case was rightly decided – see Continental Transfert Technique Ltd v Federal Government of Nigeria [2009] EWHC 2898 (Comm), paras 27-29). Further, the existence of the principle is accepted by all the leading textbooks – see Palmer op. cit, Gore-Browne on Companies at paras 7[3] to 7[6], Gower and Davies on Principles of Modern Company Law (8th ed) at paras 8-5 to 8-14, and Farrar’s Company Law (4th ed), pp 69-78.
129. In its recent decision in La Générale des Carrières et des Mines v F G Hemisphere Associates LLC [2012] UKPC 27, para 24, the Judicial Committee of the Privy Council, in a judgment given by Lord Mance, was prepared to assume that the appellant was right in contending that it was open to a court in this jurisdiction to pierce the corporate veil, but it is to be noted that this was not challenged by the respondent. In para 27, reference was made to Case concerning Barcelona Traction, Light, and Power Company, Ltd [1970] ICJ 3, in which, it was said,
“[T]he International Court of Justice referred (para 56) to municipal law practice to lift the corporate veil … ‘for instance, to prevent the misuse of the privileges of legal personality, as in certain cases of fraud or malfeasance, to protect third persons such as a creditor or purchaser, or to prevent the evasion of legal requirements or of obligations'”.
However, at para 27, Lord Mance pointed out that Barcelona Traction concerned “international legal considerations, indicating that there may not always be a precise equation between factors relevant to the lifting of the corporate veil under domestic and international law.”
130. In my view, it is unnecessary and inappropriate to resolve the issue of whether we should decide that, unless any statute relied on in the particular case expressly or impliedly provides otherwise, the court cannot pierce the veil of incorporation. It is unnecessary, because the second argument raised on behalf of Mr Malofeev, to which I shall shortly turn, persuades me that VTB cannot succeed on this issue. It is inappropriate because this is an interlocutory appeal, and it would therefore be wrong (absent special circumstances) to decide an issue of such general importance if it is unnecessary to do so.
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 co-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.
133. The notion that the principle can be extended to such a case receives no support from any case save for a very recent decision of Burton J, Antonio Gramsci Shipping Corporation v Stepanovs [2011] EWHC 333 (Comm), [2011] 1 Lloyd’s Rep 647 (which he followed in his later decision in Alliance Bank JSC v Aquanta Corporation [2011] EWHC 3281 (Comm) [2012] 1 Lloyd’s Rep 181, which was considered by the Court of Appeal at [2012] EWCA Civ 1588). None of the other decisions relied on by VTB in this connection is, on analysis, of assistance to its case.
134. In Gilford, Mr Horne had undertaken not to compete with his former employer, and a company, in which only he and his wife were shareholders, and which he formed after leaving his employment, was enjoined from competing. He effectively broke his undertaking by trading through the company, in the same way as if it had been carrying on the competing business through his wife – as indeed had happened in Smith v Hancock [1894] 2 Ch 377, 385, a case relied on by the Court of Appeal in Gilford. Thus, the decision in Gilford had nothing to do with the fact that a company was involved, and therefore, as a matter of logic, the decision cannot have been based on piercing the corporate veil – a point made by Toulson J in Yukong Line at 308, and rightly accepted by Arnold J and the Court of Appeal in this case.
135. The same point (as was said in Yukong Line) applies to Jones v Lipman, which I do not find an entirely easy case. After agreeing to sell a property to a purchaser, the vendor sold the same property to a company owned by him and his wife, and the purchaser obtained an order for specific performance against the company. On the judge’s reasoning, it would have equally been entitled to do so if, instead of the company, the property had been transferred to the vendor’s wife. Another view of Jones is that the sale by the vendor to the company was treated as a sham transaction.
137. The fact that there has been no case (until Gramsci) where the power to pierce the corporate veil has been extended in the way for which VTB contends in these proceedings does not necessarily mean that VTB’s case, in so far as it is based on piercing the veil, must fail. However, given that the principle is subject to the criticisms discussed above, it seems to me that strong justification would be required before the court would be prepared to extend it. Once one subjects the proposed extension to analysis, I consider that it is plain that it cannot be sustained: far from there being a strong case for the proposed extension, there is an overwhelming case against it.
Lord Wilson agreed with Lord Mance and Lord Neuberger. He wrote as follows on the corporate veil
“ In that this court welcomes blue sky thinking, I do not criticise Mr Lazarus for his over-arching attempt to persuade it that English law recognises no principle that the corporate veil may ever be lifted. In my view, however, and notwithstanding the difficulty of being able to define within one sentence the circumstances in which the law will – perhaps – lift the corporate veil, such was a highly ambitious submission. But this is not the place at which to embark on an attempted subjection of it to critical examination. ”