Salomon V Salomon

In January 2010, Salman, who owned a vacant bungalow lot, agreed to sell it to Maryam for RM300,000. The transfer of the lot was to be completed by the end March 2010. Last week, Salman, discovered that other lands in the vicinity of his lot were fetching much higher prices and changed his mind about selling the lot to Maryam. He proceeded to set up a company, Tatipu Sdn Bhd (the company), of which he was the majority shareholder and managing director. His wife, who is also a director, is the only other shareholder of the company. He then transferred the bungalow lot to the company.

Subsequently he informed Maryam that he will not be able to proceed with the sale of the property to her as it has been sold to a third party, i.e. the company, but that he is prepared to pay damages for breach of contract. Maryam wishes to sue both Salman and Tatipu Sdn Bhd for breach of contract and claimed specific performance. Advise Maryam whether she will be successful in her claim for specific performance. (You are required to confine your answer to issues relating to company law.) (10 marks)

MODEL ANSWER

Issue:
- Whether Maryam can claim the bungalow lot from Salman and/or Tatipu Sdn Bhd by lifting the corporate veil (case law/judicial exceptions) under the concept of separate legal entity. (1/2 marks)

Rules:
- In separate legal entity doctrine, a company has a legal personality of its own apart from the persons who owns it. The law will treat the company and the members as separate legal persons as decided in the case Salomon v Salomon.
- However, in certain circumstances, a court may ignore the separate legal entity of a company (lifting the corporate veil) and look at the members of the company and make them liable.
- The relevant rule here is the use of company to evade legal obligation to commit fraud under the case law or judicial exceptions and the relevant case is Jones v Lipman. (3/4