The Gazette 1984

GAZETTE

APRIL. 1984

tion for the compulsory acquisition of property. The Court of Appeal treated three companies associated in the wholesale grocery business as a single economic entity for the purpose of awarding compensation. Cord Denning pointed out that the group of companies was virtually the same as a partnership in which all three were partners and therefore they were not to be treated separately so as to defeat the claim to compensation on a technical point. D.H.N, is a case in which the court lifted the veil in favour of the members of a group of companies. The case was critically commented upon by the House of Lords in the subsequent Scottish decision Woolfson -v- Strathclyde Co. 2h which does not appear to have been cited by Costello J. in Powers Supermarkets. Lord Keith said the proper test to apply was to enquire whether there were special factors indicating that the corporate veil was a mere sham concealing the true realities of the situation. He doubted whether this test had been correctly applied in D.H.N. Ltd. -v- Tower Hamlets L.B.C. It is difficult to see, however, how similar criticism could be valid in relation to Powers Supermarkets Ltd. Furthermore, in that case the courts were concerned with the position of outsiders transacting business with a 9ompany and not with corporators seeking to discard the corporate persona when its adoption seemed inimical to their interests. Other Irish Authorities Two other Irish cases merit comment at this point although they do not add much in the way of analysis of the central considerations involved in lifting the veil. In P.M.P.S. and Moore -v- Attorney GeneraP 1 it was submitted that a shareholder in an incorporated body such as u provident society, while he had various contractual rights in and against that body, arising from his investment, had no property rights in its assets or business and accordingly no locus standi to complain in relation to injury done to the society. Such an argument won the approval of the courts in Macaura -v- Northern Assurance Co. 2 * where the point was taken that because a shareholder had no legal or equitable interest in the company's property, he could not insure it. On this occasion, however, the court proved unreceptive to the general train of reasoning. O'Higgins C.J. unequivocally stated that a shareholder, to the extent of his investment, had an interest in the society and contractual rights arising therefrom. This interest and those contractual rights were property rights capable of being harmed by injury done to the society. As such, a shareholder was able to invoke the protections afforded property rights by Article 40.3 of the Constitution. It emerges that a shareholder is not completely defence- less on the constitutional plane as regards harm suffered by the company of which he is a member. Costello J. arrived at the same conclusion in Attorney General -v- Paperlink Ltd. via a somewhat different route. In the P.M.P.S. case the plaintiff asserted that his constitu- tionally guaranteed property rights were being infringed. Here the infringement alleged was that of a constitu- tionally guaranteed right to earn a livelihood. The learned judge said these disparate arguments did not have any real effect on the outcome. If persons were actively engaged in a business carried on by a company of which they were shareholders and directors then they were not merely investors in a company but were exercising a constitutional right to earn a livelihood through the instrumentality of the company. 100

Conclusion Doubtless it is true that as a matter of general principle the courts treat a company as an independent entity, separate from the persons who might, from time to time, constitute its members. However, this principle is not universally adhered to as an absolute rule. The doctrine of separate corporate personality is relaxed in certain exceptional instances where it tends towards an inequitable conclusion. It is not easy to discern any unifying set of guidelines among this wilderness of single instances. 30 Cases are decided on a fairly ad hoc basis with little regard for satisfactory concepts that admit of more generalised a pp l i c a t i on. Th is a p p r o a ch b r e eds uncertainty. Judges need to intellectualise their decisions to a greater extent. Until this task is achieved the subjective judgment is likely to hold sway. • 2. [1981] ILRM 242. See also McMahon -v- Murtagh Properties Ltd. [1983] ILRM 342. Here Barrington J. held that the practice of companies holding their intoxicating liquor licences through nominees has no basis in sound logic. A company is entitled itself to hold its licence without resorting to the device of having a nominee. On incorporation a limited liability company becomes a body corporate capable of exercising all the functions of an incorporated company and having a perpetual succession and a Common Seal. 3. For the Court of Appeal judgment see [1895] 2 Ch 329. 4 .Ibid., at 341. 5. [1897] AC 30 at 51. 6. [1981] ILRM 242 at 261-264. 7. The phrase is that of Sir Otto Kahn-Freund in "Some Reflections on Company Law Reform" (1944) 7 MLR 54 at 56. 8. [1968] IR 252. 9. The following authorities were examined: Scriven -v- Jescott Leeds Ltd 53 Sol. Jo. 101, Frinion & Walton UDC-v- Walton & District Sand & Mineral Co. Ltd. [1938] 1 ALL ER649, Tritonia Ltd -v-Equity & Law Life Assurance Society [1943] AC 584 and Charles P. Kinnell & Co. -»•- Harding Wace & Co. [1918] 1 KB 405. 10. [1968] IR at 253. 11. Principles of Modern Company Law (4th ed. 1979) at p.l 12. 12. It should be noted that there are a number of specific exceptions to the Salomon principle provided for under statute. Under section 297 of the Companies Act, 1963, for example, on a winding-up of a company persons party to the carrying on of the business of that company in a fraudulent manner may be declared personally liable for the debts of the company to such extent as the court thinks fit. 13. [1959] IR 220. Footnotes 1. [1897] AC 30.

14. [1961] I WLR 170. 15. [1983] ILRM 351. 16. [1959]IR 423. 17. [1937]IR 620. 18. [1977] IRLR 312. 19. [1933] Ch 935.

20. [1962] 1 ALL ER 442. In the American case United States -v- Milwaukee Refrigerator Transit Co. [1905] 142 Fed 247 Sanborn J. said that a corporation will be looked upon as a legal entity as a general rule but when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud or defend crime, the law will regard the corporation as an association of persons. 21. High Court, unreported, 22 June 1981. The case is noted by B. M. Hannigan in (1983) 5 DULJ (ns) 111. 22. (London 1975). The learned judge mentioned specifically paragraphs 19.25 to 19.43. 23. [1882] 20 Ch D 5.

24. [1939] 4 All ER 116. 25. [1976] 1 WLR 852. 26. [1978] SC (HL) 90. 27. Supreme Court, unreported, 6 May 1983. 28. [1925] AC 619. 29. High Court, unreported, 15 July 1983.

30. Professor Gower op. cit. at p. 138 observes that the results in individual cases may be commendable but it smacks of palm tree justice rather than the application of legal rules.