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Corporations law case concerning separate legal identity and penetrating the corporate veil under the exception of 'using the company as a vehicle for fraud.
The principle refers to use of the company by its controllers in an attempt to avoid an existing legal duty that otherwise falls on the controller personally. Where this occurs, courts will refuse to treat the company as having taken on the legal duty in place of the controller. This principle is illustrated in Gilford Motors v Horne:
FACTS: Horne was managing director of Gilford Motors; his appointment was subject to a written agreement stating that he would not solicit customers for his own purposes either while he was managing director or after he left. Horne subsequently left Gilford and started up his own company, supplying spare parts for Gilford cars at an undercutting price. Concerned that he may have been in breach of his agreement with Gilford he started a new company.
ISSUE: Gilford sued for breach of the employment contract, Horne argue that the company had a separate legal identity and the clause only bound him personally, but not the company-owing to the separate legal identity argument in Salomon.
DECISION: The English Court of Appeal was satisfied that the company was formed for the purpose of avoiding liability under the agreement, the court noting that while a company usually has its own separate legal identity, if the company "was formed as a device, a stratagem" to allow Horne to evade the conditions of the agreement.
NB all information taken from 'Corporate law'- Boros & Duns.
Wiki User
∙ 14y ago
Wiki User
∙ 14y agoFACTS: Horne was managing director of Gilford Motors; his appointment was subject to a written agreement stating that he would not solicit customers for his own purposes either while he was managing director or after he left. Horne subsequently left Gilford and started up his own company, supplying spare parts for Gilford cars at an undercutting price. Concerned that he may have been in breach of his agreement with Gilford he started a new company.
Gilford sued for breach of the employment contract, Horne argue that the company had a separate legal identity and the clause only bound him personally, not the company.
The court was satisfied that the company was formed for the purpose of avoiding liability under the agreement, the court noting that while a company usually has its own separate legal identity, if the company "was formed as a device, a stratagem' to allow Horne to evade the conditions of the agreement.
NB information taken from 'Corporate law'-Boros and Duns
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