9. Lifting the veil

The modern approach

In Prest v Petrodel Resources the UK Supreme Court said the veil can be pierced only where a person is under an existing legal obligation or restriction and deliberately evades it, or frustrates its enforcement, by interposing a company he controls. Even then the court pierces only to deprive him of the advantage he would otherwise get. Most cases that look like veil-piercing can be decided on other grounds, such as agency, trust or a statute.

Evasion of an obligation

Gilford Motor v Horne: Horne had promised his former employer not to solicit its customers. He set up a company to do so. The Court of Appeal granted an injunction against both Horne and the company, because the company was a device to evade his promise.

Jones v Lipman: Lipman agreed to sell land, then transferred it to a company he controlled to avoid completing. The court ordered specific performance against both. The company was a mask.

Cases where the veil was not lifted

Adams v Cape Industries: an English parent company was not present in the United States through its subsidiary there. The Court of Appeal held that the court cannot ignore Salomon just because justice seems to require it, or because companies are in a group. Using a group structure so that future liabilities fall on a subsidiary is legitimate.

Woolfson v Strathclyde Regional Council: the House of Lords declined to treat related companies as one for compensation purposes, and doubted DHN Food Distributors v Tower Hamlets, where the Court of Appeal had treated a group as a single economic unit.

Creasey v Breachwood Motors had allowed a claimant to substitute a successor company that had taken over the defendant company's assets. The Court of Appeal overruled it in Ord v Belhaven Pubs.

Lifting the veil by statute

The Act itself sometimes looks through the company. Section 211 makes a director who knows the company carried on business for more than 30 days with fewer than two directors liable for the debts incurred in that period. Section 458 can make directors who were knowingly parties to fraudulent trading personally liable for the company's debts. Group financial statements treat a holding company and its subsidiaries together.

Enemy character

In Daimler v Continental Tyre, an English company whose shareholders and directors were almost all German was treated as having enemy character in wartime, so it could not sue in the English courts. The court looked at who controlled the company.