The principle of separate legal personality

"Argue for or against the proposition that, in the context of wealthy and powerful transnational corporations, it is inappropriate to assume that each company in a group is a separate legal person. " The principle of separate legal personality was developed in the Salomon1 case, having first been acknowledged in Edmunds v Brown and Tillard. 2 A company is recognised as a person separate from its members on incorporation. There are, however, various Common Law and Statutory exceptions to this rule.

'Lifting the veil' involves looking behind the company's separate legal personality to make its members liable to the creditors rather than just the company in it self. 3 This can be distinguished from making Directors of a company personally liable. Common law exceptions Under the English common law the main exceptions to the Salomon principle have been identified in Adams v Cape as single economic entity, fraud or fai?? ade and agency. 4 Single economic entity

Where a group of companies can be recognised as a single economic entity, each particular company within this group will not be considered as having its own separate legal personality. DHN Food Distribution v Tower Hamlets LBC5 It was held that a group of companies was a single economic unit, thus enabling the group to claim compensation on the compulsory purchase of land even though the land from which the business was operated was owned by a subsidiary and the business was operated by the parent company.

Fraud/ fai?? ade A company's separate legal personality will be ignored where the company has been used to avoid liability or to gain an illegitimate benefit. 6 Woolfson v Strathclyde Regional Council7- disapproved DHN. This case was similar to DHN but it disapproved the decision made. The Salomon rule was applied and it was held that there is no general principle for the courts to lift the veil.

A single economic entity can be found where (1) a statutory provision allows (2) a term in a contract allows. In Jones v Lipman8 the veil was lifted on the basis that the company was a sham incorporated solely for the purpose of defeating Jones' right to the land. This was also the case in Gilford Motor v Horne9 where the veil was lifted when the company was found to be a sham to enable Horne to evade his legal obligations.