Corporate Law Case: Jones vs. Lipman (1962), 1. W.L.R. 832.
Case: Relating to corporate veil
Plaintiff: Jones
Defendant: Lipman
Case citation: 1. W.L.R. 832.
This case is relating to the piercing of corporate veil.
Facts of the Case:
Mr. Lipman entered into a written agreement with Mr. Jones to sell his property at 3 Fairlawn Avenue, Chiswick for £5,250. After entering into the agreement, Lipman changed his mind and decided not to complete the sale.
Lipman then formed a company and became its sole shareholder and director. He transferred the property to the newly formed company for £3,000. The transfer was made after the agreement with Jones and was intended to place the property beyond Jones’ reach.
Lipman relied on the company’s separate legal personality to avoid his obligation under the original agreement. Jones therefore brought an action seeking specific performance of the agreement.
Legal Issues:
- Whether the corporate veil can be lifted when a company is created to avoid an existing contractual obligation.
- Whether the company was merely a device used by Lipman to avoid his legal obligation.
- Whether specific performance could be ordered against Lipman and the company.
Decision of the Court:
The High Court ruled in favour of Jones and ordered specific performance against Lipman and his company.
The Court held that Lipman had transferred the property to a company under his complete control to avoid his existing contract with Jones. The company was therefore being used as a device to defeat Jones’s right to specific performance.
The Court refused to allow Lipman to hide behind the company’s separate legal personality. It treated the company as a sham(Fake) and façade created for an improper purpose and lifted the corporate veil.
Since Lipman controlled the company, he was in a position to make the company transfer the property. Therefore, specific performance was ordered against both Lipman and the company, requiring the sale of the property to Jones.
Principles Established:
- The corporate veil may be lifted when a company is created to avoid an existing legal obligation.
- A company cannot be used as a device to escape contractual obligations.
- Separate legal personality cannot be misused to defeat an existing legal obligation.
- Courts may disregard a company’s separate personality when it is used as a façade to avoid liability.
