In what circumstances may the veil of incorporation be lifted at common law?

The corporate veil has also been lifted where a subsidiary has been found an agent of its parent company.  An agency does not exist simply from the parent subsidiary relationship or from the control exercised by members over the company.  In Smith Stone and Knight Birmingham Corporation [1939] 4 All ER 116, the court considered various factors relevant in determining whether a subsidiary was in fact acting as an agent of the parent.  The issues to consider were whether profits were treated as profits of the parent, whether the parent governed the business of the subsidiary and whether the parent was in effectual and constant control.

In the past, the corporate veil has been lifted where a group of companies have been viewed as a single economic entity.  This argument was raised successfully in the case of D. H. N Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852.  In this case, the Court of Appeal were prepared to treat the companies in a group as one economic entity; thereby, allowing the parent company to claim compensation for both loss of land and disturbance to business following a compulsory purchase order on land owned by a subsidiary.

However, a later case law has cast doubt on the effectiveness of this argument.  Woolfson v Strathclyde Regional Council [1978] SLT 159 involved similar facts to D.H.N Food Distributors Ltd; nevertheless, the approach of the Court of Appeal was not followed.  Instead, the court distinguished D.H.N Food Distributors Ltd on its facts and expressed doubt as to the correctness of the approach taken by the Court of Appeal in D.H.N Food Distributors Ltd.  In the 1990 case of Adams v Cape Industries plc [1990] Ch 433, the single economic entity and agency arguments were raised in an attempt to establish that an English company had a presence in the United States.  The Court of Appeal made clear that there was no general principle that companies in a group would be regarded as one.  Only if the wording of the statute demanded this approach, would it be followed.

As far as an agency was concerned, the court took the view that there was no presumption of agency in parent/subsidiary relationship, although an agency relationship could be established on the facts.  The court also described the fraud or façade scenario as one well recognised exception to the rule prohibiting the piercing of the corporate veil.