With all this fuss and commotion over hajibs in the news recently, Corporate Blawg has retreated into his cocoon of legal comfort and pondered recent applications of lifting the corporate veil.
Whilst Corporate Blawg firmly believes that if an individual wishes to hide her face she should (but may have to identify herself in other ways, such as fingerprints or a secret password), Corporate Blawg finds that he is often considering whether his corporate structures enable persons to avoid responsibility and liability where due. This is because Corporate Blawg loves shareholders and creditors. Although he loves shareholders and creditors, he also loves the well-paying client who instruct Corporate Blawg to set up an impenetrable corporate veil, but most of all he loves his wife.
The veil of incorporation was first tested in Salomon v Salomon & Co [1897] AC 22, where it was
decided that, amongst other issues, a company is different to the persons in its memorandum, and that after incorporation the company is not the agent of its subscribers. Further cases cemented the company as an independent legal entity carrying its own liability. A good corporate structure would mean that at each company in the group the buck would stop.
Despite the veil of incorporation, the courts are often invited to lift the veil and peek at the chanel lipstick underneath. The most famous example is Adams v Cape Industries plc [1990] BCC 786 when the court famously said:
Neither in this class of case nor in any other class of case is it open to this court to disregard the principle of Salomon v Salomon merely because it considers it just to do so.
However, in the circumstances, the court in Adams decided that it:
...will lift the corporate veil where a defendant by the device of a corporate structure attempts to evade... limitations imposed on his conduct by law
The best example for flinging the veil to one side is Jones v Lipman [1962] 1 WLR 832 where the relevant company was described as "a device, a sham, and a mask". In our tortured analogy this would also apply to persons who used the hajib to hide their identity as they rob banks. Not that Corporate Blawg has ever heard of a hajib wearer robbing a bank, nor a moustached man stealing razors, it doesn't mean it never happened. For the avoidance of doubt, Corporate Blawg does not think that hajib wearers are any more prone to robbing banks than woolly jumper wearers are to jumping into cold rivers whilst singing a Moon River by Henri Mancini.
In the recent case of Kensington International Ltd v Republic of Congo (formerly the People's Republic of Congo) and others [2005] EWHC 2684 Comm the court referred to a "creature of Cape" and, for those that like details, this is a handy piece of instructive dicta:
The court accepted that it would lift the corporate veil where a defendant, by the device of a corporate structure, attempted to evade such rights of relief against it as third parties already possessed, whilst rejecting the notion that the corporate veil would be lifted where the corporate structure was created to evade rights of relief which third parties might in the future acquire. The corporate structure could legitimately be used so as to ensure that the legal liability (if any) in respect of particular future activities of the group (and correspondingly the risk of enforcement of that liability) would fall on a particular member of the group, rather than upon its parent or other associated companies.
Corporate Blawg agrees with this in principal, and notes that the key issue here for corporate lawyers are the words "where the corporate structure was created to evade rights of relief" Bring on arms length transactions at market value!
Corporate Blawg considers that the veil should stay firmly on in all circumstances other than a clear and present sham, device, mask, facade, myth, deceit, falsity, perversity and absurdity, and where there is ANY DOUBT that such structure was created for bona fide purposes, that veil should stay firmly down, especially if it makes over-the-hill politicians feel uncomfortable.
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