The Gazette 1984

GAZETTE

APRIL. 1984

Whittaker

Lord Denning was askance at the notion that

the statutory provisions governing industrial disputes

could be evaded in such a fashion. He demonstrated a

preparedness to lift the veil in these circumstances. Such

an approach is consistent with the view taken by the

courts in other cases where parties have tried to make use

of the separate personality concept in order to resile from

legal obligations. In

Gilford Motor Co. Ltd.

-v-

Home

the

defendant had entered into a valid agreement not to

solicit the plaintiffs customers or to compete with it for a

certain time after leaving its employment. Upon cessation

of his employment the defendant formed a company

which carried on a competing business and caused the

whole of its shares to be allotted to his wife and an

employee of the company who were appointed to be its

directors. An injunction was issued against him and the

company. The order against the company was grounded

on the fact that it had been formed to facilitate the

defendant in breaking the agreement with the plaintiff

and he was in control of its affairs. Similar considerations

influenced the judgment in

Jones

-v-

Lipman.

Here the

defendant, after having agreed to sell the land to the

plaintiff, sought to resist an order of specific performance

by conveying the land to a company which he controlled.

Russell J. described the company as a mere mask which

the defendant held before his eyes in an attempt to avoid

recognition by the eye of equity. Specific performance

was awarded against both him and the company.

Powers Supermarkets Ltd. -v- Crumlin Investments Ltd.

and Dunnes Stores Ltd.

Courts are less reluctant to pierce the corporate veil in

relation to group entities. There is a tendency to heed the

substance behind the legal form by treating a whole group

of holding and subsidiary companies as one entity. This

was an approach that found favour with Costello J. in

Powers Supermarkets Ltd.

-v-

Crumlin Investments Ltd.

and Dunnes Stores Ltd.

Here a shopping centre was

developed by Crumlin Investments Ltd. and a number of

tenants took leases of different units in it. One of these

leases was granted to Quinnsworth Ltd., a wholly owned

subsidiary of Powers Supermarkets Ltd. The lease

contained,

inter alia,

the following covenant by the lessor:

"Not during the term to grant a Lease for or to sell

or permit or suffer the sale by any of its tenants or so

far as within the Landlord's control any sub or

under tenants of groceries or food products in or

over an area exceeding 3,000 square feet in any one

unit forming part of the shopping centre unless so

ordered or directed by any court of competent

jurisdiction."

The development was not a commercial success and

Crumlin Investments Ltd. was ultimately acquired as a

wholly-owned subsidiary by Dunnes Stores Ltd. The

latter company formed part of the Dunnes Stores Group

which numbered approximately 150 companies. Crumlin

Investments Ltd. then proceeded to sell the fee simple in a

unit in the centre to another member of the Group, which

intended to open a supermarket in competition with

Quinnsworth Ltd. Costello J. restrained them from

implementing their objective.

There are two strands to this decision. The second

concerned principles of land law governing the running of

restrictive covenants. The second defendants were bound

by the restrictive covenant as successors in title of the

original covenantor, not being

bona fide

purchasers for

value without notice. In this connection Costello J.

referred to Wy lie's

Irish Land Law

and

London andS. W.

Railway Co.

-v-

Gomm.

While the lessor company did

not expressly covenant on behalf of its successors and

assigns, it could not have been intended that the day after

the execution of this lease the lessor would have been at

liberty to convey the fee simple of a unit in a shopping

centre so as to permit a grantee of the fee simple to trade in

a way forbidden to a lessee of the same unit.

Thus, productive use was made of the presumed

intention of the parties. An earnest determination not to

defeat the reasonable expectations of the covenantee is

also manifest in the judicial rejection of the rule of

separate corporate personality as applied to the facts of

this particular case. Costello J. firmly stated that both

Crumlin Investments Ltd. and Dunnes Stores (Crumlin)

Ltd. should be regarded as constituting part of a single

entity, namely the Dunnes Stores Group. There was no

materiality in the difference in legal nomenclature. The

Dunne family were actively involved in the running of the

Dunnes Stores Group of Companies, and their wishes

prevailed in respect of each company in the group.

Purchases of stock on a company's behalf were made by

the purchasing panel of the Dunnes Stores Group who

apportioned liability for purchases to each trading

company in the Group to whom the goods were invoiced.

There was no proper system of directors and shareholders

meetings. The companies were controlled by members of

the Dunne family (or their servants and agents) meeting

informally to manage the affairs of the Group as a whole

or by individual members taking decisions on the family's

behalf. Costello J., in addition called attention to the

derisory consideration for the conveyance, the absence of

the usual covenants and the failure to register the deed.

All these factors strongly suggested that the various

corporate hats worn by members of the Dunne family

were a facade concealing the true facts.

The learned Judge however did not rest content with

such a conclusion. Instead of confining himself to the

specifics of the case he proceeded to enunciate a broader

and more general rule. Costello J. said that the Court

may, if the justice of the case so requires, treat two or

more related companies as a single entity so that the

business notionally carried on by one will be regarded as

the business of the group or another member of the group

if this conforms to the economic and commercial reality

of the situation. Two English authorities were mentioned

in support of this proposition. The first was

Smith, Stone

and Knight -v- Birmingham Corporation

where Atkinson

J. enumerated a set of points which a court might bring

into the reckoning when deciding whether or not to lift the

veil in relation to a group of associated companies. The

first point was: were the profits treated as the profits of the

parent company? Secondly, were the persons conducting

the business appointed by the parent company? Thirdly,

was the parent company the head and brain of the trading

venture? Fourthly, did the parent company govern the

adventure, decide what should be done and what capital

should be embarked on the venture? Fifthly, did the

company make the profits by its skill and direction?

Sixthly, was the parent company in effectual and constant

control.

More controversially, Costello J. also relied to some

extent on

D.H.N. Ltd. -v- Tower Hamlets London Borough

Council

a case dealing with the payment of compensa-