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Timestamp: 2019-04-20 18:45:38+00:00

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The basic feature of corporate personality is that the corporation is a legal entity distinct from its members. The main advantage that it has is that it is capable of having rights and of being subject to duties which are not identical as those enjoyed or borne by its members. It has legal personality and is over and over again described as an artificial person distinguishing with a human being a natural person.
The corporation is a separate person and the members are not as such liable for its debts  . If there is no express provision regarding the liability of the members, they will be free from any personal liability. But with regard to a company incorporated under the Companies Act an absolute absence of any kind of liability is not allowed.
The Court of Appeal faced an issue with regard to the enforceability of a foreign judgment in England in Adams v. Cape Industries Plc.  In this case the subsidiary company in South Africa employed the claimants. The complaint was relating to health hazards caused to the employees by asbestos. The complaint was filed against the Parent Company for personal injury. The court discussed the issue of corporate personality in this case along with the issue of lifting or piercing the corporate veil. In this case the court held that primary judgment obtained against the subsidiary company and in default of parent company’s appearance cannot be enforceable in England. The reasoning given by the court in the present case was that the parent company is having a separate legal existence entirely different from the subsidiary company and consequently it cannot be held liable as there is no presence of the parent company in the foreign country were the case came up and was adjudged. In the case of claims of personal injury against the parent company this judgment was making serious implications with regard to enforcement. This was mainly because the parent company can always decide not to take part in the suit proceedings and avoid litigation on the basis of separate legal existence of a corporate entity.
where the subsidiary is an agent of the company”  .
Exceptions to the general rule were a need in the 20th century. There were several attempts made to develop exceptions. The general rule was that the company will be considered as a separate legal entity. In the case of Smith, Stone & Knight v. Birmingham Corp.  an exception with regard to agency relationship was developed by Atkinson J. The exception of single unit was developed in DHN Food Distributors v. Tower Hamlets LBC.  In the case of Creasey v. Breachwood Motor  Richard Southwell’s interest of justice was developed. The grounds put forward by the court in Adams v. Cape Industries Plc for disregarding the so called separate entity by piercing the corporate veil. The most important exceptions developed by the court in this case were the façade or sham exception and the agency exception.
The exception of sham or fraud was developed by the courts by way of two cases. Those cases are Gilford Motor Co v. Horne  and Jones v. Lipman  . In the case of Gilford Motor Co v. Horne the defendant started a new company and incorporated it inorder to get the customers from his previous employer keeping it in direct competition with the former employer’s company. The Court of Appeal lifted the corporate veil to provide the former employer an injunction which will be effective against the company as well as the defendant as his company was merely created to sham to breach the restrictive covenant against the defendant.
In the case of Jones v. Lipman  the defendant entered into contract to sell land with the plaintiff and later changed the mind to sell the property. In order to evade from specific performance of the contract the defendant created a company and transferred the property to it. Russell J. refused to recognise the separate corporate entity of the company under the circumstances of the case to make the defendant as well as the company liable for the specific performance of the contract.
The other main exception to the Salomon principle identified by Slade L.J. is based on the decision in the case of Smith, Stone & Knight Ltd v Birmingham Corp.  , in which the parent company’s business was carried on by the subsidiary. In this situations the business relationships together whether the controlling persons will be treated as the head and brain of the venture by bringing the concept of effective and constant control of the business.
The approach of the court for piercing the corporate veil based on the “realities of the situation” and “interests of justice” where later disregarded by the court in Adams v. Cape and Ord v. Belhaven Pubs. In the case of Ord  , Belhaven Pubs was a subsidiary company of the parent company Ascot Holdings. In case against the Belhaven Pubs the plaintiffs were not able to recover their claims due to insufficient assets. The shortfall in the company was caused due to the restructuring of the company by the parent company in response to a recession in the market. The Court of Appeal refused to lift the corporate veil and upheld the separate identity of the subsidiary from the parent company. It was stated by Hobhouse L.J. that the restructuring was done in conformity with the liberties given by the Companies Act 1985.
In the aspect of this case the decision in Creasey v Breachwood Motors  , attains significance. In this case Mr Creasey obtained an award of damages for the unlawful dismissal of him from his job in Welwyn Motors. The two traders of eth Welwyn Motors transferred the asset of the company to another company Breachwood Motors controlled by them so that the award cannot be enforced. Mr. Creasey approached the court for an order to obtain the damages from Breachwood another company of the group which was allowed by Mr Richard Southwell Q.C. by lifting the corporate veil. This case was disregarded in Ord, on the ground that “only where a company is recognised as a fraud or sham can its autonomous legal existence within a group be disregarded”. Without distinguishing the case from Ord the proposition laid down in Breachwood was struck down as a valid authority.
In the case of DHN Food Distributors Ltd v. London Borough of Tower Hamlets  , Lord Denning put forward the need to treat a group of companies as one since in reality it works like a single economic entity. This decision can be treated as a continuation to the approach taken by lord Denning in Littlewoods Mail Order Stores Ltd v. McGregor  which highlighted the need for giving careful consideration of the Salomon doctrine in applying to groups of companies. The DHN case involved the compulsory acquisition of one company’s premises in a group owned entity the court examined the concept of “single economic unit” to recognised the group as a single entity.
In the New South Wales case of Pioneer Concrete Services v. Yelnah Pty Ltd  Young J considered the authorities and held that the veil should only be lifted where there was in law or in fact a partnership between the companies, or where there was a sham or façade.
"Liability of parent over subsidiary company actions| Law Teacher." LawTeacher.net. 11 2013. All Answers Ltd. 04 2019 <https://www.lawteacher.net/free-law-essays/business-law/liability-of-parent-over-subsidiary-company-actions-business-law-essay.php?vref=1>.
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LawTeacher. November 2013. Liability of parent over subsidiary company actions| Law Teacher. [online]. Available from: https://www.lawteacher.net/free-law-essays/business-law/liability-of-parent-over-subsidiary-company-actions-business-law-essay.php?vref=1 [Accessed 20 April 2019].
LawTeacher. Liability of parent over subsidiary company actions| Law Teacher [Internet]. November 2013. [Accessed 20 April 2019]; Available from: https://www.lawteacher.net/free-law-essays/business-law/liability-of-parent-over-subsidiary-company-actions-business-law-essay.php?vref=1.

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