Lifting the Veil Essay

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Veil Lifting
The general reasoning of the Court in this area of Veil Lifting the Corporate veil has been confusing and, at times, contradictory:
The question requires an analysis of whether the parent company (A); will be liable for the claims against its subsidiary, (b): in other words, whether the corporate veil can be lifted in this group structure.
Both the parent company and its subsidiary are incorporate which have been legally formed. A company once incorporated, is a separate, and distinct legal entirely from the people who set it up:
The Veil of incorporation is created by the principle of separate legal personality and that limited liability which are established in Salomon v Salomon & Co Ltd (1897)
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As the subsidiary was operating on behalf of the parent company the court lifted the Veil on the basis of the existence of an agency relationship. It can be argued that third is not a true exception to Salomon principle it is merely an instance where the normal agency principles applies.
In the absent of an express agency agreement or the evidence of day to day control, it is very difficult to establish an agency relationship:
In Smith, Stone & Knight v Birmingham Corporation [1939]
In Smith, Stone and Knight Ltd v Birmingham Corporation (1939) All ER 116, Atkinson J lifted the veil to enable a subsidiary company operating business on land owned by the holding company to claim compensation on the ground of agency.
The parent company held almost all the shares in the subsidiary and profit of the subsidiary were treated as the profits of the parent was in effective con troll of the business and also the personnel who conducted the business and also appointed the personnel who conducted the business. It was held that whether there was an agency relationship was a question of fact in each case, such as who was really carrying on the business, who received the profit and who was in effective and constant control of the business.
The veil was lifted in this case on the ground of any agency relationship.

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