108 / 322
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.
•
Footnotes
1. [1897] AC 30.
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.
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.