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Company Law 案例(苏格兰)

What was Lee v Lee's Air Farming Ltd case?

Mr Lee was a pilot who operated a crop dusting business. Mr Lee formed the corporation, Lee's Air Farming Ltd. Its main business was aerial spraying. He was the director and owned most of the shares(he held 2999 of the company's 3000 shares). As director of the corporation, he hired himself as an employee of the corporation. As one of the administrative tasks in setting up the company, he acted as its agent in setting up insurance, including workers' compensation insurance. The corporation's plane crashed while Mr Lee was flying it as part of his work, and he was killed on the job. His widow, the plaintiff, attempted to collect what was rightfully due to a widow of a man killed on the job. The actual defendant was the insurance company.

The main question in the case was whether a person could be both a director and major shareholder of a corporation, on the one hand, and also an employee of the corporation, on the other.

Previous cases, beginning with the Salomon case, had confirmed that a corporation has an existence separate and apart from its shareholders and directors. The exceptions to that principle are gathered under the rubric, 'Piercing the Corporate Veil.' Where a

corporation is a mere sham, the law can cut through the veil of corporate legitimacy, and reach into it for the shareholders and directors.

The Lee's Air Farming case confirmed the Salomon principle. Lee's Air Farming Ltd. was not a mere sham. It was a legitimate corporation, established for legitimate purposes, and had carried on a legitimate business. His employment by the corporation was well-documented, through government records of tax deductions, workmens' compensation contributions, etc., and was not something his widow had attempted to piece together after the fact of his death. There was no reason in law why a person could not perform corporate functions and employee functions within the same corporation. it was held that 'L' was a separate person distinct from tha company hence compensation was due to the widow

What happened during the case for Jones v Lipman 1962

In this case Lipman agreed to sell land to Jones but before completion of the contract sold the land to a company of which he and another were the sole directors and shareholders. The judges ordered specific performance against Lipman and the company. The company was described as a device and a sham, a mask

which Lipman held before his face in an attempt to avoid recognition by the eye of equity.

The Jones v Lipman case is a classic example of lifting the veil of incorporation, that the company was used to evade legal obligation or commit fraud.

(b) Fraud

A court will not allow itself to be an instrument of fraud or illegality. Thus, Professor Ford observed that the main point in Gilford Motor Co v Horne [1933] Ch 935, was that the veil of incorporation will be overlooked if there is an ‘unrebutted inference that one of the reasons for the creation of an intervening company was to evade a legal or fiduciary obligation.’

In Gilford Motor Company v Horne, H had promised in his contract of employment as managing director of G that he would not at any time solicit G’s clients. H subsequenlty formed a company (‘Z’) with his wife. Z then solicited G’s clients. The court held that the defendant’s assertion, that the business Z’s rather than H’s, was a mere ‘sham’ or ‘cloak’; especially since one of the reasons for Z’s creation was so that H could evade his covenant

with G. The court therefore decided to overlook the fact of Z’s incorporation (or the fact that Z actually owned the business) and thus held H liable for breaching his contract with G.

In Pioneer Concrete Services, Young J suggested (implicitly) that fraud would have to be either the ‘sole’ or ‘dominant’ purpose in order to invoke the principle in Gilford Motor Co.

but note the advantages of limited liability as follows:

Risk is minimized for the investors.

Management are freed up to take greater risks

It allows the public price of a share (in the case of a public company) to be easily determined.

Macaura v Northern Assurance Co. (1925) AC 619,

in the case of Macaura v Northern Assurance Co. (1925) AC 619, one sees a vivid demonstration of the impact of corporate (separate) personality an limited liability. In Macaura v Northern Assurance Co., Mr. Macaura owned an estate and some timber. He agreed to sell all the timber on the estate in return for the entire issued share

capital of Irish Canadian Saw Mills Ltd. The timber, which amounted to almost the entire assets of the company, was then stored on the estate. On 6yth February 1922 Mr. Macaura insured the timber in this own name. Two weeks later a fire destroyed all the timber on the estate. Mr. Macaura tried to claim under the insurance policy. The insurance company refused to pay out arguing that he had no insurable interest in the timber as the timber belonged to the company. Allegations of fraud were also made against Mr. Macaura but never proven. When this matter reached before the House of Lords in 1925, the House of Lords found that that the timber belonged to the company and not to Mr. Macaura. Although he owned all the shares in the company, Mr. Macaura had no insurable interest in the property of it. Thus, it could be seen that in the same way corporate personality facilitates limited liability by making the debts belong to the company/corporation. It also means that the company’s assets belong to it (the company) and not to the shareholders. Thus, it can be seen from the above case that in company law context, that there is a clear-cut separation of shareholders’ property from the company’s property. As we can see in the above case, Mr. Macaura, despite holding all the shares in the company, only "owned" his shares, and not the company’s property. Those shares represented all the participation rights in

the company, which he could sell if he wished. A share, according to Peddington, that formidable textual authority on company law, is a bundle of rights. Being a bundle of rights, it entitles to the owner to participation in the sharing of dividends attendance at meetings etc.

In the case of Lipman v Jones (1962) 1 WLR-832, Mr. Lipman entered into a contract with Mr. Jones, for the sale of land. However, Mr. Lipman changed his mind and did not want to complete the sale. He formed a company in order to avoid the transaction and conveyed the land to the company instead. He then claimed that he no longer owned the land and could not comply with the contract. The Court found the company was but a fa?ade for Mr. Lipman to hide behind and granted an order for specific performance. In Littlewood Stores v IRC (1969) 3 ALLER – 855 Lord Denning observed that:

The doctrine laid down in Salomon v Salomon case has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts can not see. But that is not true. The courts can, and often do, pull

off the mask. They look to see what really lied behind. The legislature has shown the way with group accounts and the rest. And the courts should follow suit"