Company Law Case: Jones Vs. Lipman 1962, 1. W.L.R. 832
Case: Lifting up Corporate veil, specific performance
Plaintiff: David James Jones and Martha Ann Jones
Defendant: Benny Lipman and Alamed Ltd
Decision Number: [1962] 1 WLR 832
This case is related to lifting up Corporate veil, specific performance, use of company as a device
Facts of the Case:
On 27 February 1961, Benny Lipman agreed to sell to David James Jones and Martha Ann Jones the freehold property at 3 Fairlawn Avenue, Chiswick, Middlesex, for £5,250, together with certain chattels for a further £750. Completion was to take place on 20 March 1961. Lipman subsequently changed his mind and sought to avoid completing the transaction. He caused the property to be sent to Alamed Ltd, a company under his complete control. The company had a nominal capital of £100 and Lipman and a clerk of his solicitors were its directors and sole registered shareholders. The property was transferred to the company for £3,000. The company financed part of this amount through a bank loan, while the balance remained owing to Lipman. Lipman’s solicitors subsequently offered Jones damages instead of completion, but Jones sought specific performance of the original agreement.
Plaintiff’s Claim:
Plaintiff sought specific performance of the contract requiring the property to be sent to them. They proceeded against both Lipman and Alamed Ltd, arguing that the transfer of the property to the company could not be used to defeat their contractual right to obtain the property.
Defendant’s Arguments:
Defendants sought to resist specific performance, including on the basis that Alamed Ltd was a separate legal person and was not a party to the original contract. Defendants’ position was that the plaintiffs’ remedy should be limited to damages rather than an order requiring the property to be transferred.
Legal Issues:
- Whether plaintiffs were entitled to specific performance of the agreement for sale?
- Whether Lipman could avoid his contractual obligation by transferring the property to Alamed Ltd?
- Whether the company could rely on its separate legal personality when it had been used by Lipman to defeat plaintiffs’ right to specific performance?
- Whether specific performance could be ordered against both Lipman and Alamed Ltd?
Decision of Courts:
Chancery Division: Russell J, Court ordered Lipman and Alamed Ltd to transfer the property to Jones. It held that Lipman had transferred the property to his own company only to avoid his contract with Jones. The company was therefore being used as a device to escape his legal obligation. So, the Court granted specific performance in favour of Jones.
Established Principles:
- A person cannot use a company as a device to evade a pre-existing legal or equitable obligation.
- Corporate personality cannot legitimately be used to defeat an existing contractual right.
- Where the controller has complete control over the company holding the property, the court may grant specific performance notwithstanding the attempted transfer to the company.
