Adams V Cape Industries Plc Case Study

The reasoning in the case of Adams v Cape Industries Plc (1990) is considered as an all-encompassing principle which sets out the guidelines as to when should the courts lift the corporate veil.

To which extent is this current judicial/ legal position with regards to group companies really justified?

The emblematic stance of the court is that the corporate veil should be preserved and the Salomon principle applied. By this avowal, the Court implied that, in general the law operates to shield shareholders or members from liabilities accrued by the company through the doctrine of separate corporate personality as established in the case of Salomon v Salomon Co Ltd . Whilst on one hand the application of the Salomon Principle is firmly embedded in English company law, it cannot be denied that there has been a shift in this trend where the courts have demonstrated an endeavour to lift the corporate veil in specific instances.

By the late 1980’s, a new tendency which the court will adopt concerning group structures was proposed in National Dock Labour Board v Pinn and Wheeler Ltd which illustrates an endeavour to preserve the strict application of the Salomon Principle and this was confirmed in Adams v Cape Industries Plc where the Court of Appeal in its judgment narrowed considerably the circumstances where the courts will lift the corporate veil. In setting the guidelines, Lord Justice Slade made it clear that the Court is not free to disregard the Salomon Principle merely because justice so required. Adams v Cape Industries Plc illustrates a restatement of the Salomon Principle which restricts the instances where the veil of incorporation will be lifted to three situations:

1. Where the Court is interpreting a statute or docume...

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...at the case of Adams v Cape Industries Plc fails to provide for a perfect illustration as it has narrowly defined the instances when the court must lift the corporate veil. Thus, considering it as the benchmark providing for an all-encompassing rule would be misleading as there remain loopholes within this area which demand to be cured so as to provide a more reliable framework as to when and why must the court intervene to lift the corporate veil. It therefore remains questionable whether justice can be encompassed within an uncertain rule. As Lord Parker in Daimler Co Ltd v Continental Tyre and Rubber Co (GB) Ltd stated, the ‘legislature might, but no court could possibly, lay down a hard and fast rule’ . It can therefore be concluded that it is desirable for the parliament to devise a mechanism to determine the conditions when the corporate veil may be pierced.