Piercing the Corporate Veil in Australia
Piercing the Corporate Veil in Australia
Ian M Ramsay Harold Ford Professor of Commercial Law and Director, Centre for Corporate Law and Securities Regulation The University of Melbourne David B Noakes Solicitor, Allen Allen & Hemsley, Sydney, and Research Associate, Centre for Corporate Law and Securities Regulation The University of Melbourne There is a significant amount of literature by commentators discussing the doctrine of piercing the corporate veil. However, there has not been a comprehensive empirical study of the Australian cases relating to this doctrine. In this article, the authors present the results of the first such study. Some of the findings are (i) there has been a substantial increase in the number of piercing cases heard by courts over time; (ii) courts are more prepared to pierce the corporate veil of a proprietary company than a public company; (iii) piercing rates decline as the number of shareholders in companies increases; (iv) courts pierce the corporate veil less frequently when piercing is sought against a parent company than when piercing is sought against one or more individual shareholders; and (v) courts pierce more frequently in a contract context than in a tort context. ____________________________________________________________
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INTRODUCTION
The House of Lords in Salomon v Salomon1 affirmed the legal principle that, upon incorporation, a company is generally considered to be a new legal entity separate from its shareholders. The court did this in relation to what was essentially a one person company. Windeyer J, in the High Court in Peate v Federal Commissioner of Taxation,2 stated that a company represents:
“[A] new legal entity, a person in the eye of the law. Perhaps it were better in some cases to say a legal persona, for the Latin word in one of its senses means a mask: Eriptur persona, manet res.”3
Salomon v Salomon & Co [1897] AC 22 (Salomon). For extended discussion of Salomon, see R Grantham
Ian M Ramsay Harold Ford Professor of Commercial Law and Director, Centre for Corporate Law and Securities Regulation The University of Melbourne David B Noakes Solicitor, Allen Allen & Hemsley, Sydney, and Research Associate, Centre for Corporate Law and Securities Regulation The University of Melbourne There is a significant amount of literature by commentators discussing the doctrine of piercing the corporate veil. However, there has not been a comprehensive empirical study of the Australian cases relating to this doctrine. In this article, the authors present the results of the first such study. Some of the findings are (i) there has been a substantial increase in the number of piercing cases heard by courts over time; (ii) courts are more prepared to pierce the corporate veil of a proprietary company than a public company; (iii) piercing rates decline as the number of shareholders in companies increases; (iv) courts pierce the corporate veil less frequently when piercing is sought against a parent company than when piercing is sought against one or more individual shareholders; and (v) courts pierce more frequently in a contract context than in a tort context. ____________________________________________________________
_________
I
INTRODUCTION
The House of Lords in Salomon v Salomon1 affirmed the legal principle that, upon incorporation, a company is generally considered to be a new legal entity separate from its shareholders. The court did this in relation to what was essentially a one person company. Windeyer J, in the High Court in Peate v Federal Commissioner of Taxation,2 stated that a company represents:
“[A] new legal entity, a person in the eye of the law. Perhaps it were better in some cases to say a legal persona, for the Latin word in one of its senses means a mask: Eriptur persona, manet res.”3
Salomon v Salomon & Co [1897] AC 22 (Salomon). For extended discussion of Salomon, see R Grantham