As a separate entity, the company is distinct from the directors, employees and shareholders. And the distinction has been rightly insisted by the law that it should be duly observed: Lee v Lee's Air Farming Ltd [1961] AC 12. "In particular the company does not act as the agent of the directors and, in general, they do not incur personal liability for the acts of the company or its employees: Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465, 488 per Lord Parmoor."(1)
As to the case of Lee v Lee's Air Farming Ltd [1961] AC 12, the deceased had formed a company. He held all issued shares except one; he was appointed governing director for life and chief pilot for the company at a salary arranged by him. Article 33 stipulated a master & servant relationship between him and the company .He died in course of work. The Workman' Compensation benefited and a governing director was deemed a servant eligible for compensation in the PRIVY COUNCIL DECISION ([1961] A.C. 13).
The reasons are obvious: The company and deceased were two separate and distinct legal persons. The deceased was a "worker" as defined under the Act. As such, he was permitted to make contractual relationships. It is well established that the mere fact that someone is a director of a company is no impediment to his entering into a contract to serve the company. If it is accepted that the respondent company was a legal entity, their lordships see no reason to challenge the validity of any contractual obligations which were created between the company and the deceased.
"Legal Proposition:
Extension of Salomon to owner as employee."(3)
But with the development of the company and social economic, the principal of Salomon provided the shareholders a shelter to evade the crack-down of the law. Thus the British courts started to "lift the Vail" on the purpose of fairness and justice since the case of Smith, Stone, &Knight in 1939, instead of caring about the principal part on law, they focused on the factual transactions. Lifting the Vail is existed as an exception of Salomon' principal.
The relevant cases are shown as DHN Food Distributors Ltd and others v. London Borough of Tower Hamlets [1976] 3 All ER 402 , Bank of Tokyo v. Karoon [1987] AC 45N and Adams v. Cape Industries plc [1990] BCC 786.
In the judgments of Standard Chartered Bank (Respondents) v Pakistan National Shipping Corporation (Appellants) and Standard Chartered Bank (Appellants) v Pakistan National Shipping Corporation and Others and Another (Respondents) and Others), Saloman v Saloman Co Ltd [1897] AC 22 was described that companies have been recognized as separate legal entities to their shareholders, their directors and their employees. Leaving aside certain cases, not applicable in this case, where it has been held permissible to lift the corporate veil, e g where the company is a mere fa?ade, directors or employees acting as such will only be liable for tortuous acts committed during the course of their employment in three circumstances. In particular the company does not act as the agent of the directors and, in general, they do not incur personal liability for the acts of the company or its employees: Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465, 488 per Lord Parmoor. Directors may, however, be personally liable if they directed or procured the commission of a wrongful act. The exact scope of this type of liability has been discussed in a line of cases. Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1, 14 per Atkin LJ and C Evans & Sons Ltd v Spritebrand Ltd [1985] 1 WLR 317 may serve as examples.
A hallmark of modern companies is that the liability of the shareholders is limited. This is not a necessary characteristic of a commercial corporation. Indeed even for some time after the Limited Liability Act 1855 there were major trading entities which had been incorporated but the investors in which were exposed to unlimited liability for the corporation's debts. This could, and not infrequently did, result in the investors' ruin. By reducing and defining the potential risk to investors, limited liability opens the way for modern companies to raise the necessary capital for their business, either privately or on the stock market. For this reason, only in exceptional circumstances does the law allow a creditor of the company to pierce the veil of incorporation and fix the shareholders with personal liability: Salomon v A Salomon & Co Ltd [1897] AC 22.
The statements above were all belonging to "lift the Vail". It was caused by principal of Salomon, though it was cited as an exception, it was still in relation to Salomon' principal.
The case of Solomon is important, not only because it establishes the principle of separate legal personality and provides the reference to subsequent cases, but also because the significant development of the initial principal-lift the Vail, which is more fair and used to solve many problems.
Internet sites
1. www.judgement of houselords.com
2. www.law -online.com
3. www.unbf.ca.cn
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