Corporate Personality Structure

Corporate Personality – Problem Answer Structure
1) Give the summary of facts briefly (around 200 words)

2) Breach of Contract: In order to establish liability, or determine any possible claims that can arise
in the abovementioned fictitious case, we must analyze whether there was a breach of the
contract formed between A and B (explain the facts of the situation in correlation with breach of
contract). From the given facts, we can conclude that there was no breach of contract;
therefore… (explain that whoever was concerned cannot pursue a claim against the parent
company). Despite an absence of such breach, reliance can be placed upon the doctrine of
lifting the corporate veil, a concept set out in modern Company Law, to pursue a claim and seek
appropriate remedy from the parent company as compensation for the loss inflicted by its
subsidiary.
3) The 'corporate veil' refers to the separation of legal identity of the company, which is a core
principle in the United Kingdom’s Company Law. This concept symbolizes the distinction
between the company and its shareholders, conferring that a company’s obligations, or any
liabilities that may arise in the course of its operations, are its own responsibility. In the
landmark judgement of Salomon v. Salomon [1896], the courts first addressed the principle of a
‘corporate veil’; here, Lord McNaughten stated that the company was a separate legal person,
rather than the agent of its trustees.
The case revolved around Aron Salomon, the owner of a leather business who sold said business
to another company. When the company eventually entered liquidation, the court-appointed
liquidator determined that it was a sham; hence, Mr. Salomon should be held personally liable
for any outstanding debts. Although the Court of Appeal agreed with this view, the House of
Lords highlighted that companies have a distinct legal identity of the company, independent of
their shareholder(s). Therefore, a precedent emerged that in the event of insolvency,
shareholders could not be sued by the creditors of a company.
This view of the courts was reaffirmed in cases such as Macaura v. Northern Assurance [1925]
and Lee v. Lee’s Air Farming [1961], where the concept of a corporate veil was taken into
consideration in instances involving insurance and workers’ compensation in the event of death.
However, judges came to recognize that the concept of a corporate veil—along with treating
companies as a separate legal entity— may be employed for fraudulent purposes rather than to
protect shareholders from burdensome responsibilities. Therefore, the courts established
statutory and judicial means of lifting the veil of incorporation in order to impose a liability on
the directors and owners of the company, where required. We will be discussing such means of
piercing the corporate veil, as they pertain to the abovementioned case below.
IF INSOLVENCY IS MENTIONED IN THE QUESTION:

If a company is entering into insolvency, creditors or outsiders can employ statutory means of
veil lifting to seek compensation. These are set out in S.213 and S.214 of the Insolvency Act,
1986, and affirmed by S.993 of the Companies Act 2006 (Explain whichever section is
applicable).
IF NOT:
Since the statutory principles for veil-lifting are not applicable in this particular case, we may
analyze the judiciary’s approach with regards to piercing the corporate veil to determine the
rights and liabilities of the parties.
Historically, the courts relied heavily on Salomon’s principle, and preserved the metaphorical
corporate veil to avoid a broad application of the law and opening legal floodgates. However,
over the years, judges have taken a more interventionist approach towards claims that
necessitate piercing the corporate veil and treating both companies and shareholders, officers,
or subsidiaries as a single entity. The Daimler v. Continental Tyres [1916] case is a noteworthy
example of the era of classical veil lifting, where the courts’ approach was to determine if the
company was created as a mere façade, or due to policy considerations.
Over the years, instances of piercing the corporate veil became increasingly uncertain as the law
pertaining to this principle was relatively wide. Some legal questions that arose included how
the courts would determine what amounted to a mere façade. Eventually, in the DHN Food
Distributors v. Tower Hamlets LBC case, Lord Denning held that a group of companies (such as
those with a parent-subsidiary relationship) were to be treated as a single entity and any risks or
liabilities would arise accordingly. This decision was heavily criticized as it limited the
commercial benefit that businesses could obtain from incorporation; hence, the decision was
overturned in Woolfson v. Strathdyde [1978].
In modern-day Company Law, the courts have fully reformed the instances in which they would
consider lifting the veil of incorporation. A relatively recent landmark judgement in Adams v.
Cape Industries [1990] has streamlined and clarified the instances where judicial veil-lifting
would be applicable. These include where the company is operating as a mere façade, but doing
so to avoid a pre-existing legal obligation (Prest v. Petrodel Resources [2021]), where a statute
stipulates that a group of companies must be treated as a single entity, or where parent-
subsidiary or associated companies have a principle and agent relationship. The phenomenon
where the courts prevent the controller of a company from evading a pre-existing legal
obligation to which he is bound is referred to as the “evasion principle.” Arguably, only the mere
façade requirement is one that directly pertains to Company Law, as statutory exceptions are
clear in their application, and the principle-agent concept is derived from Commercial Law
principles.
(Then create arguments as they are relevant to the case facts).
4) TORTIOUS LIABILITY – MISFEASANCE AND NON-FEASANCE AND PEL
Explain the history behind Chandler v. Cape [2011], and the fact that it is now overruled since
courts determine whether there was an act (misfeasance) or omission (non-feasance) which led
to the detriment of the party. However, the prove the same, the claimant must establish that
there was ‘substantial intervention’ from the parent company in the subsidiary’s decisions.

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Corporate Personality – Problem Answer Structure

1) Give the summary of facts briefly (around 200 words)

IF INSOLVENCY IS MENTIONED IN THE QUESTION:

(Then create arguments as they are relevant to the case facts).

4) TORTIOUS LIABILITY – MISFEASANCE AND NON-FEASANCE AND PEL

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