The Gazette 1984

GAZETTE

APRIL. 1984

Lifting the Veil

The doctrine of separate corporate entity is not applied

as a rigid inflexible rule. The Holmesian

dictum

that the

life of the law has not been logic but experierice, springs to

this mind on this occasion. A variety of techniques have

been employed to circumvent the principle embodied in

Salomon's

case when its unrestricted application would

undermine some overriding interest. As Professor Gower

states in these exceptional instances the law either goes

behind the corporate personality to the individual

members, or ignores the separate personality of each

company in favour of the economic entity constituted by

a group of associated companies.

It is difficult, however,

to formulate a set of coherent propositions from the

numerous judicial decisions.

In most cases the authority

Salomon's

case is accepted without question as it was in

Smallman -v- O'Moore and Newman.

Smallman's

case the defendants had carried on a

partnership business as building contractors. Later they

decided to incorporate, which transformation was

effected. Notice of the formation of the company was

circulated to the suppliers of the partnership and

published in two trade gazettes. After the registration of

the company, business was continued in the partnership

name so that cheques were paid by a director and the

secretary of the company upon forms displaying the

company name. The plaintiffs had been suppliers of the

defendants prior to the formation of the company and

continued, as they thought, after its formation, to supply

goods to the defendants. Davitt P. found, however, that

the parties were not

ad idem.

The plaintiffs believed they

were supplying the goods to the partnership while the

defendants believed they were being supplied to the

company. In these circumstances a claim for the price of

the goods failed and the plaintiffs were burdened with the

responsibility of having to institute fresh proceedings.

This was a most unjust result. It does not appear to have

been suggested that the court should pierce the corporate

veil. Arguably the court ought to have recognised the

continued identity of the business when the company

took over from the unincorporated firm especially when

there was a great potential for customers being misled. On

the other hand the facts of

Smallman

-v-

O'Moore and

Newman

bear a strong similarity to those in the English

case of

Davies -v- Elsby Bros. Ltd.

where the court

reached much the same result. In the latter case again a

company had taken over from an unincorporated firm.

Legal proceedings were instituted against the wrong

defendant and it was held the court had no power to allow

the writ to be amended by substituting the right defendant

once the limitation period had expired.

Smallman -v- O'Moore and Newman

is to be contrasted

with the recent decision in

Chemical Bank -v-

McCormack

This case concerned an order for

inspection of bank accounts under the Bankers' Books

Evidence Act, 1879 (as amended). It was argued that the

order should be amended by deleting the reference to two

companies on the ground that notice had not been given

to them. Carroll J., without elaboration, said this

contention failed to take account of the relationship of the

defendant with the companies. The defendant had been

formally notified of the order through his solicitor. As the

defendant and the companies were in reality one and the

same, notice would be deemed to be sufficient. This line of

reasoning was undoubtedly inspired by a determination

to defeat the claims of a less than meritorious party.

Roundabout Ltd. -v- Beirne

In this case a flagrant attempt to avail of the corporate

entity principle was allowed to succeed. Premises were

closed down in circumstances giving rise to a trade

dispute. Then the premises were leased (with an option to

purchase) to the plaintiff company, the directors of which

were the owners of the premises, their accountant and

three barmen. When the licensed premises were subse-

quently re-opened for business by the plaintiff company,

the entire work was carried out by the directors them-

selves. The barmen-directors were paid a fixed yearly sum

by way of directors' remuneration in such irregular

intervals and in such irregular proportions as was found

convenient. The barmen were at the mercy of the other

directors in relation to security of tenure. Dixon J.

decided that the plaintiffs had accomplished a successful

subterfuge and further picketing of the premises was

restrained. The trade dispute did not attach to the

premises and so the provisions of the Trade Dispute Act,

1906 were rendered inoperative. The earlier Irish case

Ferguson

-v-

O'Gorman

where Meredith J. refused to

be deceived by a similar ploy was distinguished on

somewhat unconvincing grounds. In

Ferguson

-v-

O'Gorman,

unlike in the present case, the premises had

been taken over as a going concern. Furthermore in

Roundabout Ltd.

-v-

O'Beirne

the new company did not

employ anyone so that there were no workmen on whom

pressure could be brought to bear by picketing the

premises.

Roundabout Ltd.

-v-

O'Beirne

is a case in which legal

technicalities were allowed to prevail over industrial

realities and commonsense. In

Examite

Ltd.

-v-

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