PIERCING THE CORPORATE VEIL: TORT CLAIMS
This research paper examines if it is possible to find a solution to the problem of whether or not the veil of incorporation should be lifted as regards tort claims. A solution can be found, but only if statutory tort reform is enacted in England. English courts have steadfastly resisted efforts through private law suits to pierce the corporate veil except under very egregious circumstances where observing corporate niceties defeated the very purposes of justice itself. They have adhered excessively to form over substance. They have in a series of very narrow rulings been grudgingly willing to lift the corporate veil where the legislature has enacted statutes which clearly indicate its intent to prevent fraud and other forms of misconduct by company directors and controlling shareholders. However, in the absence of statutory tort reform English courts appear wedded to a more reactionary stance.
The leading case is Salomon v. Salomon [1897] AC 32, (1895-1899), All ER 32. There a founding unincorporated shareholder, just before his trading company went insolvent, sold his business to a new English company which was owned by himself and six other nominal shareholders. After the business fell on hard times, the new company was liquidated. The issue was whether the founding shareholder was liable for the debts of the company. The House of Lords, L.J.s Halsbury, Watson, Herschell, Macnaghten, Morris and Davey, reversed the Court of Appeal holding that the corporate veil of new company should not be lifted (pierced).
The rationale of the House of Lords in Salomon was that so long as all the proper formalities were observed by the companies and individuals involved, the new company "was a distinct and independent corporation" (27). It "is at law a different person altogether from the subscribers . . . the company is not in law the agent of the subscribers nor trustee for them . . . Nor are ...