UK Corporate Law

UK Corporate Law



UK Corporate Law

Introduction: Fundamental Principles

The principle of separate corporate personality is long established and a central pillar of modern company law. In the celebrated case of Salomon v Salomon & Co. (1897) , the House of Lords ruled that, irrespective of the degree of an individual shareholder's interest a company, and regardless of the fact that the shareholder may exercise complete de facto control of the company's affairs as its governing director, the company's acts should not be deemed his acts, and that its liabilities cannot be considered his liabilities.

Therefore it is submitted that the fact that one shareholder wholly controls a company in practice is not at law a sufficient reason for ignoring the legal personality of the company. It should be noted that the operation of the Salomon principle will not always be to the advantage of the dominant individual within the company. In Macaura v Northern. Assurance Co.(1925) recognition of the separate corporate personality caused the company's director and major shareholder to suffer huge losses after he insured company property erroneously in his own name. That said, the separate legal persona of a company is sometimes conceptualised as a “veil of incorporation” and the general rule is therefore that it will not be pierced or lifted by a court so as to apportion the liabilities or rights of a company to its shareholders.

Adams v Cape Industries plc

The fundamental principle established in Salomon in relation to single companies was applied in the context of a group of companies by the Court of Appeal in the case under discussion in this paper, Adams v Cape Industries plc (1990) . Cape Industries, a company registered in England, was engaged in mining asbestos in South Africa. The company's products were marketed in the United States of America through a complicated network of subsidiaries and associated companies. In a series of class actions a number of factory workers who had contracted disease after inhaling asbestos dust managed to secured judgment in an American court against Cape (the holding company presiding over the corporate group).

However, the litigants were subsequently unsuccessful in enforcing the judgment against Cape in the English Courts. The Court of Appeal held that an English trading company would only be treated as having been present and a possible a party to an action abroad if it had established a fixed place of business there at its own cost and either it or its representative had carried on business there for more than a minimal time.

Three arguments were raised (all unsuccessfully) in an effort to establish that Cape had been present in the United States. As discussed by Hicks and Goo, the first of these was a single economic unit argument contending that Cape and its subsidiaries were in reality one economic unit which should be treated by law as such. The second was a corporate veil argument - namely that the corporate form was nothing more than a façade concealing the true facts of ...