The Separation of Legal Personality

The fact of the Atlas Maritime Co SA v Avalon Maritime Ltd [1]is that Mr Richard Morrison is the director of Stewart Marine, a company which run ship brokers. He wants to buy a vessel which had some broken and the company appointed a technical consultant, Mr Melville Price which from Drake Maritime SA. Drake Maritime SA is a technical company and London agent of Stewart Marine. After the evaluation, Mr Price said that the vessel is appropriate to buy. Then, they ask Mr Jeffery whether want to buy or not. Then, he was agreed and said that he had form a company for a purpose to buy the vessel called Avalon. Marc Rich is Avalon’s parents company and lends the money to buy the vessel. After few years, the vessel was sold to Atlas. Staughton LJ said that there has two way to definite of the lifting or piercing the corporate veil that is for piercing, it is treating the company and shareholder liabilities, rights or activities in the same. While to lift or look behind it is that shareholders have use the power to do some legal purpose from the company. A company once it is incorporated, the company is an artificial person in law which means distinct from its members and shareholders. It is able to sue or being sued by its company own name, use the power to get property and etc. The doctrine of Separate Legal Personality had cleared that a company is treated as distinct legal person with an independent existence from that its members and directors. The legislature and the courts have the ability to see the behind of the company is being manipulated by whom and this process is called as “lifting the veil of incorporation” (KOH, 2006). As normal the court will not lift the corporate veil unless there is a special circumstances need to lift behind the veil. (SHANTHY RACHANGAN,JANINE PASCOE,ANIL JOSHI, 2010) Over a century ago, the decision of the House of Lords in Salomon v Salomon & Co [2] are widely used for reference in justification for separate legal personality and are not often be challenging and questioning. Salomon had his own business and later on he promoted a company and transferred his business to the new company. The company has seven shareholders, which is Salomon, his wife and five children. His new business is fail and owes a debt. The house of lord held that Salomon no needs to compensate with the debt to creditors because this is not personally liable. Salomon v Salomon Co expressly gave effect to the principle of Separate Legal Personality which protects those behind the veil, which can lend itself to abuse lifting/piercing the veil attempts to address this abuse. But this case is no doubt recognized as “one-man company”. As aforementioned, the courts will not simply to lift the veil unless there is a special circumstance. In fact, they can lift or pierce the veil by statute or common law. Once the court lifts the veil, judges will examine whether the members had abuse their power to acquire property or any illegal and the owner’s personal asset will all expose in the proceeding of court and. In Pioneer Concrete Service Ltd v Yelnah Pty Ltd[3] had simply showed that although a company is separate legal entity but courts will look behind to the reality to find out who is the controller in the certain occasions. (Forji, 2007) For common law, when there is a corporation case relation to a number of discrete factors such as fraud, agency, group entity, or justice and equity then the court will decide to lift the corporate veil. In Aspatra Sdn Bhd & 21 Ors v Bank Bumiputra Malaysia Bhd[4], the Aspatra and 21 other companies were appealed to the Supreme Court to request to discharge the Mareva injunction and Anton Piller which agreed by the trial judge. Lorrain was the director of two bank, Aspatra Sdn Bhd is one of the company that he controlled. He had breached his fiduciary duty and makes a secret profit. Then, the secret profit was transferred to Aspatra which is under his control. There was a fraud but yet the court prefers to lift it because of justice. The judge was lift the veil and disclosed that he was alter ego of Aspatra and his entire asset was identified (SHANTHY RACHANGAN,JANINE PASCOE,ANIL JOSHI, 2010). A fraud in Malaysia that will do the justice whereas the director premeditates to take advantage of company for an indirect purpose and a business will not operate for a long time if they keep making fraudulent business. Another situation where to lift the corporate veil is an agency, agency is that a company is subsidiary which holding by its parent company and the company is acted like agent for its shareholders. “Alter ego” is also a term that is representative agency in the court (Ian M Ramsay,David B Noakes , 2001). The shareholders will be liable for the acts of the company. In the case of FG Films[5], An American Company formed a company in UK called FG Films Ltd. The American company holding the 90% shares of the company and want to acquire subsidy offer by UK government for its production of a film called “Monsoon” in India in the name of a British company. The court held that this company is not operated by the British company, it just merely an agent of the American Company. Therefore, the FG film cannot enjoy the British government benefits because the British government refused to register the film as a British film. The court decided to lift the company veil with do the fairness and justice (William, 2011). It is the same in Atlas’s case, Staughton LJ also stated that form a shell company and have an agency relationship between creditor and debtor is not an honest way to do business and would be revolutionary. The group entity concept mentioned that the company who seek the advantages of separate corporate personality at the same time must accept the corresponding burdens and the court will to look behind of the economic entity of the whole group. However, whether to pierce the corporate veil or not, the Court always depend of the fact of the case. DHN Food Distribution Ltd v Tower Hamlets London Borough Council [6]is a case which similar with Smith, Stones & Knight Ltd[7] with the enforcing purchase. DHN is the parent company of Bronze Investment and DHN Food Transport, major in grocery business while Bronze had the premises and DHN Food Transport had the vehicle. The Council compulsory purchasing the premises and will only pay the value of the land to Bronze but ignore the compensation for any business on the land. But DHN is whose focus on run the business and Bronze only had the premises,. The held of the court when justice is treated the three companies as a single economic benefit and lift the veil to make a payable for disturbance to the parent company because it was no outside business other than this group. (Singh, 2013) In particular, Courts sometimes will lift corporate veil to protect the justice and equity of everyone. In the case of Creasy v Breachwood Motors Ltd[8], Creasy was fire by his employment company, Welwyn Motors Ltd. Creasy was sued his employer for wrongly fired him but Welwyn had already transfer all his business to his other company called Breachwood Motors Ltd. Breachwood paid all Welwyn’s creditors but not Creasy, he felt that he was no liable for to pay the compensate because the two companies are separate legal entity. With the interest of justice, the court lifts the veil as Welwyn was part of the Breachwood, therefore it was responsible to pay Crease for the compensation.

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[1] Atlas Maritine Co SA v Avalon Maritime Ltd (No1)[1991] 4 All ER 769 [2] Salomon v Salomon & Co (1897) AC 22 [3] Pioneer Concrete Service Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254 (SCNSW,Young J) [4] Aspatra Sdn Bd & 21 Ors v Bank Bumiputra Malaysia Bhd[1988] 1 MLJ 97,SC [5] RE FG Films Ltd [1953] 1 WLR 483 [6] DHN Food Distribution Ltd v Tower Hamlets London Borough Counchil [1976] 1WLR 852 [7] Smith,Stone & Knight Ltd v Birmingham Corporation (1939) 4 All ER 116 [8] Creasy v Breachwood Motors Ltd [1993] BCLC 480

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The Separation of Legal Personality. (2017, Jun 26). Retrieved January 25, 2022 , from
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