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Rationalising corporate disregard

Published online by Cambridge University Press:  04 May 2020

Alan Dignam Open the ORCID record for Alan Dignam [Opens in a new window]  and
Peter Oh
Alan Dignam*
Affiliation:
Queen Mary University of London, London, UK
Peter Oh
Affiliation:
University of Pittsburgh, Pittsburgh, USA
*
*Corresponding author email: a.dignam@qmul.ac.uk
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Abstract

The area of corporate disregard has a poor reputation for certainty of reasoning. To provide an alternative way of approaching the issue, we conducted an empirical study of the relationship between rationale and outcome within UK corporate disregard cases from the nineteenth to the twenty-first century. We examine the evidence from three perspectives. First, we examine the broad range of instrumental rationales found in the case law by disregard rates in order to identify where issues might be arising with individual rationales. Secondly, as suggested in the wider empirical literature, we examine the rationale rates by jurisdiction in order to see whether there were problematic interpretation issues concentrated in particular parts of the court levels. Thirdly, we examine the rationale rates by substantive claim to see whether contextual aspects of the doctrine, as the court identified with family law in Prest, were influencing outcomes. By providing an empirical study on the rationales instrumental to corporate disregard outcomes we aim to introduce a broader evidential view of where concerns may lie, which can both aid critique of key judicial historical developments such as Adams and Prest and provide a broader evidence base that might aid future judicial reform of the area.

Keywords

company lawcorporate disregardveil piercingveil liftingempirical study
Type
Research Article
Information
Legal Studies , Volume 40 , Issue 2 , June 2020 , pp. 187 - 208
Copyright
Copyright © The Society of Legal Scholars 2020

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Footnotes

†

We are grateful for a Hewlett International Grant and initial network funding from the Sloan Foundation. We are also grateful to Lord Neuberger, the former President of the UK Supreme Court, for facilitating the Supreme Court's engagement with our work, and in particular to Lord Hughes and Emmanuel Sheppard, for helping us understand how judges make decisions. Our thanks to Christian Witting and John Dagnall for their insights as we developed the paper and finally the anonymous Legal Studies referees, whose observations improved it immeasurably.

References

1 Veil/lifting/piercing/parting/peeping etc are used interchangeably by the judiciary in the case law over the course of our study to describe a corporate disregard action that affects or may affect the principle established in Salomon v Salomon [1897] AC 22 concerning the separate existence of a corporation. Numerous academics and judges have commented on this interchangeable, frustrating inexactitude and have continued to do so even after attempts to tighten it in Prest v Petrodel Resources Ltd [2013] 2 AC 415 (see for example Allan, G ‘To pierce or not to pierce? A doctrinal reappraisal of judicial responses to improper exploitation of the corporate form’ (2018) 7 JBL 559Google Scholar and R v McDowell [2015] EWCA Crim 173 paras 35 and 40). To deal with this, in this paper – as we explain in the methodology section – we only allow cases within the final data set where a decision affecting the Salomon principle was material to the outcome. Additionally rather than continue the inexact and confusing veil metaphor we use the earlier term ‘corporate disregard’, to capture very specifically over time a decision where what is at stake is whether the presumption of separate corporate personality established in Salomon should be upheld or disregarded.

2 Salomon, above n 1.

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4 Adams v Cape Industries [1990] Ch 433.

5 Prest v Petrodel Resources Ltd [2013] 2 AC 415.

6 M Moore ‘“A temple built on faulty foundations”: piercing the corporate veil and the legacy of Salomon v Salomon’ (2006) Journal of Business Law 180 at 202.

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8 Salomon, above n 1, at 33–34. See also McGaughey, E ‘Donoghue v Salomon in the High Court’ (2011) 4 Journal of Personal Injury Law 249Google Scholar.

9 Gilford Motor Co Ltd v Horne [1933] Ch 935.

10 Jones v Lipman [1962] 1 WLR 832.

11 See also Re Bugle Press [1961] Ch 270.

12 Smith, Stone, & Knight Ltd v Birmingham Corpn [1939] 4 All ER 116.

13 DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 32 P & CR 240.

14 Woolfson v Stratthclyde Regional Council [1979] 38 P & CR 521.

15 Re a Company [1985] 1 BCC 99421.

16 See also Esso Petroleum Co Ltd v Mardon [1976] 2 WLR 583.

17 See J Lowry ‘Lifting the corporate veil’ (1993) Journal of Business Law 41 and National Dock Labour Board v Pinn and Wheeler Ltd [1989] BCLC 647.

18 Adams v Cape Industries [1990] Ch 433.

19 Adams, ibid, at 538 and 544.

20 See for example Creasey v Breachwood Motors Ltd [1993] BCLC 480, Raja v Van Hoogstraten [2006] EWHC 998 (Ch), Kremen v Agrest (No 2) [2011] 2 FLR 490.

21 Prest, above n 1.

22 Prest, above n 1, para 28.

23 Prest, above n 1, para 92.

24 See Airbus Operations Ltd v Withey [2014] EWHC 1126 (QB); Wood v Baker [2015] EWHC 2536 (Ch) and JCA BTA Bank v Ablyazov (2014) 2014 WL 3535498.

25 Persad v Singh [2017] UKPC 32.

26 [2013] EWHC 3530 (Ch).

27 [2015] EWHC 2536 (Ch).

28 [2013] 2 AC 415 paras 23, 31 and 68.

29 [2013] EWCA Crim 1306, [2014] 1 WLR 663.

30 [2015] EWCA Crim 173, [2015] Crim LR 623.

31 [2017] EWCA Civ 256.

32 [2017] EWCA Civ 256 para 17. High Court Transcript HC11CO1402 para 90 (i). For a wider consideration of these developments see Allan, above n 1, at 576 and Xing, TZ ‘The new era of corporate veil-piercing’ (2016) 28 Singapore Academy Law Journal 209Google Scholar.

33 Antonio Gramsci Shipping Corpn v Recoletos Ltd (Lembergs) [2013] EWCA Civ 730.

34 [2018] IRLR 4. See also Akzo Nobel NV v Competition Commission [2013] CAT 17.

35 Rossendale Borough Council v Hurstwood Properties (A) Ltd (2017) 2017 WL 07305981 para 133.

36 Rossendale Borough Council v Hurstwood Properties (A) Ltd (2019) 2019 WL 01065746 para 42.

37 Allan, above n 1, at 576.

38 See for example O Kahn-Freund ‘Corporate entity’ (1940) 3 Modern Law Review 226–28 and Lowry, above n 17, at 41–42.

39 Moore, above n 6, at 203.

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42 Moore, above n 6, at 180–203.

43 Samuels, Alec. “Lifting the Veil.” Journal of Business Law (1964): 107–17.

44 C Schmitthoff ‘Salomon in the shadow’ (1976) Journal of Business Law 305 and Powles, D ‘The “see-through” corporate veil’ (1977) 40 Modern Law Review 339Google Scholar.

45 FG Rixon ‘Lifting the veil between holding and subsidiary companies’ (1986) Law Quarterly Review 415. Indeed, the Court of Appeal did set out this concept in Re a Company [1985] 1 BCC 99421.

46 P Ziegler and L Gallagher ‘Lifting the corporate veil in the pursuit of justice’ (1990) Journal of Business Law 51 and Ottolenghi, S, ‘From peeping behind the corporate veil, to ignoring it completely’ (1990) 53 Modern Law Review 338CrossRefGoogle Scholar.

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48 Matthews, R ‘Clarification of the doctrine of piercing the corporate veil’ (2013) 28 JIBLR 516Google Scholar.

49 George, R ‘The veil of incorporation and post-divorce financial remedies’ (2014) 130 Law Quarterly Review 373Google Scholar.

50 Allan, above n 1, at 559–83 and A Schall ‘The new law of piercing the corporate veil in the UK’ (2016) ECFR 549.

51 F Rose ‘Raising the corporate sail’ (2013) LMCLQ 566; Hannigan, B ‘Wedded to Salomon: evasion, concealment and confusion on piercing the veil of the one-man company’ (2013) 50 IJ 11Google Scholar; Grantham, R ‘The corporate veil – an ingenious device’ (2013) 32 U Queensland LJ 311Google Scholar; Lee, P Woan ‘The enigma of veil piercing’ (2015) 26 ICCLR 28Google Scholar; Xing, above n 32, and Schall, above n 50.

52 Xing, above n 32, at 240.

53 Oliphant, H ‘A return to stare decisis’ (1928) 14 ABA Journal 161Google Scholar.

54 Holmes, OW ‘The path of the law’ (1897) 10 Harvard Law Review 469Google Scholar.

55 KN Llewellyn The Bramble Bush: On Our Law and Its Study (4th edn, 1973) p 14.

56 RC Lawlor ‘Fact content analysis of judicial opinions’ (1968) 8 Jurimetrics 107–108.

57 Dworkin, RTaking Rights Seriously (Harvard University Press, 1977) pp 31–33Google Scholar.

58 Mendelson, W ‘The neo-behavioral approach to the judicial process: a critique’ (1963) 57 American Political Science Review 602–603CrossRefGoogle Scholar.

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60 Webley, L ‘Qualitative approaches to empirical legal research’ in Cane, P and Kritzer, HM (eds) The Oxford Handbook of Empirical Legal Research (Oxford: Oxford University Press, 2010) p 941Google Scholar.

61 Thompson, RB ‘Piercing the corporate veil: an empirical study’ (1991) 76 Cornell Law Review 1036Google Scholar.

62 Ibid, at 1045–1046.

63 See Matheson, JH ‘The modern law of corporate groups’ (2009) 87 North Carolina Law Review 1112–1113Google Scholar; Matheson, JH ‘Why courts pierce’ (2010) 7 Berkeley Business Journal 12–13Google Scholar.

64 Ramsay, IM and Noakes, DB ‘Piercing the corporate veil in Australia’ (2001) 19 Company and Securities Law Journal 250Google Scholar.

65 FS McChesney ‘Doctrinal analysis and statistical modeling in law: the case of defective incorporation’ (1993) 71 Washington University Law Quarterly 515–519.

66 See above n 38.

67 Macey, J and Mitts, J ‘Finding order in the morass: the three real justifications for piercing the corporate veil’ (2014) 100 Cornell Law Review 113Google Scholar.

68 Ibid, at 112 and 140.

69 Broussard, MArtificial Unintelligence (MIT Press, 2018) pp 1–39CrossRefGoogle Scholar and AJ Dignam ‘Artificial intelligence: the very human dangers of dysfunctional design and autocratic corporate governance’ Queen Mary School of Law Legal Studies Research Paper No 314/2019 (3 May 2019), available at ssrn.com/abstract=3382342.

70 Macey and Mitts, above n 67, at 147–148.

71 D Millon ‘The still-elusive quest to make sense of veil-piercing’ (2010) 89 Texas Law Review 15. See also 20, 29: ‘[c]ases say that if a corporation is a mere “alter ego” of its shareholder it is a basis for piercing… Metaphors … serve as little more than window dressing for fairness or policy considerations that are rarely articulated clearly’.

72 Cf Hall and Wright, above n 59, at 97.

73 Dignam, A and Oh, PB ‘Disregarding the Salomon principle: an empirical analysis, 1855–2014’ (2019) 39(1) Oxford Journal of Legal Studies 16CrossRefGoogle Scholar.

74 Searches by decade begin in 1885. Cases begin with Farrar v Farrars Ltd [1888] 40 Ch D 395.

75 ‘UK Reports All’ database, beginning 1865.

76 ‘UK Cases Combined Courts’ database, beginning 1558.

77 See Mitchell, above n 7, at 24–28.

78 The exclamation mark within our search terms is a wildcard that nets different permutations of a term.

79 But see Mitchell, above n 7, at 24, table 8.

80 For example Chandler v Cape plc [2012] 1 WLR 3111.

81 See In re HR Harmer Ltd [1959] 3 All ER 689 (QB).

82 See Davis v Elsby Bros [1959] 1 WLR 170.

83 See Gonville's Trustee v Patent Caramel Co [1912] 1 KB 599.

84 See for example Yukong Lines Ltd of Korea v Rendsburg Investments Corpn [1998] BCC 870, which involves two different types of shareholders.

85 See Lord Sumption's view on this in Prest at 8. For more recent inexact usages see R v Sale, above n 29, para 22 and R v McDowell, above n 30, paras 35 and 40.

86 Millon, above n 71, at 23.

87 Oh, P ‘Veil-piercing’ (2010) 89 Texas Law Review 81Google Scholar.

88 The frequency of rationales may differ from that of sub-category rationales, because the presence of multiple sub-category rationale within a case were recorded as only one instance of that rationale being instrumental to the court's decision whether to disregard the corporate form.

89 Instrumentality refers to a rationale expressed regarding the corporate form as a ‘conduit’ or ‘vehicle’, or some other means for perpetuating a wrong. The common thread among this rationale revolves around the use of a murky instrumental metaphor that summarily refers to intentional misuse of the corporate form.

90 See Vargo, JF ‘The American rule on attorney fee allocation: the injured person's access to justice’ (1993) 42 American University Law Review 1567 at 1612Google Scholar; S Cooper and S Morris ‘Personal injury litigation, negotiation and settlement’ (Legal Studies Research Branch Scottish Executive, 2002) ch 5, para 5.5; B Fox et al ‘Litigation and enforcement in UK (Northern Ireland)’ (2015) at uk.practicallaw.thomsonreuters.com/7-579-4505?__lrTS=20170927102352202&transitionType=Default&contextData=%28sc.Default%29.

91 See Priest, GL and Klein, B ‘The selection of disputes for litigation’ (1984) 13 J Legal Stud 1CrossRefGoogle Scholar.

92 See Gilford Motor Co Ltd v Horne [1933] Ch 935; Jones v Lipman [1962] 1 WLR 832; and Prest, above n 1. See also Figure 2A.

93 See Table 1.

94 See Rixon, above n 45, at 415 and Lowry, above n 17, at 41–42.

95 Prest, above n 1, para 92.

96 Adams, above n 4.

97 Adams, above n 4, at 824.

98 The Court of Appeal in Adams also dismissed Lord Denning's Single Economic Entity proposition for corporate disregard as having never reached a sufficient degree of judicial consensus to have any legitimacy.

99 Prest, above n 1, paras 83 and 92.

100 Prest, above n 1, para 28.

101 Mitchell, above n 7, at 20; Thompson, above n 61, at 1050; Khimji, MF and Nicholls, CC ‘Piercing the corporate veil in the Canadian common law courts: an empirical study’ (2015) 41 Queen's Law Journal 207Google Scholar; Ramsay and Noakes, above n 64.

102 See Mitchell, above n 7, and Dignam and Oh, above n 73.

103 As before eliminating the three low number rationales – Assumption of Risk, Informalities and Undercapitalisation.

104 In the low frequency range a small number of cases reached the Supreme Court level.

105 Solely in the case of deception the elevated corporate disregard rate for the intermediate appellate level is entirely the result of English Court of Appeal decisions, with relative parity between its civil versus non-civil divisions.

106 Mitchell, above n 7, at 24 (reporting 24 Procedural, 35 Contractual, 18 Tortious, 7 Equitable Wrongdoing, 7 Admiralty (in rem), 74 Statutory, and 9 Criminal claims).

107 The Other category also has a mostly low rate stability. As we noted earlier, it is by its nature a catch-all category that inexplicably is skewed towards a low disregard rate overall.

108 Here we are reporting the number of instances in which rationales appear in relation to different types of claims. For instance, Alter Ego appears in a case with two different claims, and so the table depicts that rationale twice – once under Contract and once under Statutory Interpretation.

109 See Oh, P ‘Veil-piercing unbound’ (2013) 93 Boston University Law Review 89Google Scholar.

110 On the broader impact of contextual elements in disregard cases see Dignam and Oh, above n 73.

111 Adams, above n 4.