The Relevance of the Salomon v. Salomon Case
'Salomon v Salomon is an outdated case with little relevance to modern
company law.'
Discuss.
Salomon v Salomon[1] served to establish the principle of corporate
personality that 'forms the cornerstone of company law.'[2] It is my
contention that despite various attempts by both the legislature and
the judiciary to circumvent the principle, this 'cornerstone' has not
been eroded, rather, it forms the very foundations of modern company
law.
Salomon v Salomon was and still is a landmark case. By confirming the
legitimacy of Mr Salomon's company the House of Lords put forward the
concept of separate corporate personality and limited liability.
Inextricably linked with this ratio is an acknowledgement of the
importance of certainty within the law, thus separate corporate
personality becomes a concrete principle to which the law must adhere.
Salomon v Salomon is followed in subsequent cases, notably Macaura v
Northern Assurance Co.[3] and Lee v Lee's Air Farming Ltd[4]. These
cases highlight the reality of the separate corporate identity and
take it a step further in stressing the distinction between a
company's identity and that of its shareholders. In effect Salomon's
principle as confirmed by Macaura v Northern Assurance Co. and Lee v
Lee's Air Farming Ltd. helps form an image of a corporation as a
'depersonalised conception'[5], an object that is 'cleansed and
emptied of its shareholders.'[6]
Yet the concept of an incorporated company as a separate legal person
causes some difficulties, for surely all 'legal personality is in a
sense fiction'.[7] Questions soon arise ...
... middle of paper ...
... [7] Farrar (1998) chap. 7
[8] Salomon v Salomon
[9] Lennards Carrying Co Ltd v Asiatic Petroleum Co.[1915] AC 153
[10] As occurred in Daimler v Continental Tyres [1915] 1 KB 893.
[11] As quoted by F. Moghadam in QMWLJ 1 p36.
[12] e.g. Gilford Motor Co. v Horne [1933] Ch.935
[13] S.213
[14] S.214
[15] D.H.N Food Distributors v Tower Hamlets L.B.C ([1976] 3 All ER
462)
[16] [1983] 3 WLR 492.
[17] cf. Gallagher and Zeigler 1990
[18] [1991] 1 All ER 929
[19] Farrar
[20] [1996] 2 All ER 433
[21] [1998] 1 All ER 929
[22] [1998] BCLC 447
[23] [1985] BCLC 333 at p337.
[24] p536.
[25] [1993] BCLC 480
[26] [1998] 1 WLR 830
[27] Cf Ord v Belhaven.
[28] [1998] AC 854
[29] Cf S.24 Companies Act 1985
[30] cf. S213, 214 Insolvency Act 1986.
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The Principle of Separate Corporate Personality The principle of separate corporate personality has been firmly established in the common law since the decision in the case of Salomon v Salomon & Co Ltd[1], whereby a corporation has a separate legal personality, rights and obligations totally distinct from those of its shareholders. Legislation and courts nevertheless sometimes "pierce the corporate veil" so as to hold the shareholders personally liable for the liabilities of the corporation. Courts may also "lift the corporate veil", in the conflict of laws in order to determine who actually controls the corporation, and thus to ascertain the corporation's true contacts, and closest and most real connection. Throughout the course of this assignment I will begin by explaining the concept of legal personality and describe the veil of incorporation. I will give examples of when the veil of incorporation can be lifted by the courts and statuary provisions such as s.24 CA 1985 and incorporate the varying views of judges as to when the veil can be lifted.