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In of the English legal system on


In summary, the Salomon ruling
remains predominant in English company law. Arguable facad, fraud and sham primarily
trigger the invocation of the veil piercing exception to a degree however, these
grounds are not exhaustive, and much is left to the discretion and interpretation
of the English legal system on case-to- case basis.


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Looking at the judiciary approach
in the case of Adams v Cape Ind. 1989, statutes rulings would have been most
suited. The case was based on compensation made by a USA based workers that
contracted disease by inhaling Asbestos mined in South African by a registered
UK company. Though the workers managed to secure judgment in an American court
against Cape, the litigants were dismissed in the English Courts. The English
court was not interested to lift the veil of incorporation for equity to prevail;
rather the case was on precedent, limited liability and separate legal
personality. A resort to Statute would be justifiable in such a case

There is a lot of obvious
uncertainty that could arise in using or misusing of precedent as a result
Statute based was established. It is a written law produced by Parliament which
originates from decisions made in other courts, it allows the will of the
people to be heard and considered through their elected legal bodies. The
disadvantage associated with this is, statutes made by a government can be
overturned by a different government when in power for instance trade union
enacted by Conservative Government in 1970’s was overturned by the next
Government. Poor wordings are another disadvantage, making it a need for
interpretation by the judiciary. The Statutes are interpreted on three rules –
The Literal Rule is used when word-to-word basis, no alteration. However, as
this can cause absurd results the Golden Rule was created to solve this problem
enabling words of the statute to be altered to fit in with society today. The third
is the Mischief Rule, this was intended to fill any gaps in statutes that may
not have been covered through pass experiences with different cases. Slapper
and Kelly (2015)pp97 state that a purposive approach is a Civil Law approach.

Precedents not binding on higher
courts can be discarded in many ways.  The
judgement may be overruled in a latter case by the judge deeming the judgement
wrong or reversed a subtle difference. They can also be reconciled if facts are
so similar, failure to consider the precedent would be illogical and they can be

In judgement, the key parts are the
ratio decidendi that is the reason for the decision which binds as precedents
in accordance with court hierarchy and the obiter dicta which implies things said
by the judge which do not form a necessary part of the court’s decision, though
it may go on to form part of a binding precedent in the future. Inconsistent
application of the binding precedent in Salomon situation could relate to
justification for more statutory interventions, like a case quoted by Bourne
(2013)pp20 of Macaura v Northern Assurance Co Ltd 1925 the claim for insurance
payment was dismissed and Constitution Insurance Co of Canada v
Kosmopoulos  (1987) the claim for
insurance payment was upheld  it deemed  unsatisfactory if the material facts of each
case are the same to have opposing judgment. Equity of the law was obviously
foregone in one of these cases.

In England the legal system has a
hierarchy of courts developed on statutes. The Salomon v A Salomon & Co Ltd
case was tried in the three different courts – the High Court, the Court of
Appeal and the House of Lords before the judgement was reached. The lower court
in English legal system is governed by decisions made previously by higher
courts when ruling though this can be reversed. 
House of Lords which is now the Supreme Court is the highest UK court
with all the power to change decisions made by lower courts and all right not
to bound by their previous decisions, next is Court of Appeal, which is control
by Supreme Court rulings and previous decisions though exceptions apply. Then
there comes the High Court which is control by the above two court’s rulings.
Below this are the Crown and Magistrate Courts, these court rarely make
decisions that form binding precedent and are subject to all of the courts
mentioned above. There are some advantages with this – speed of judicial
process and ability to access appeal. Both Salomon and his creditors passed
through these hierarchical systems. The hierarchy of the courts enables the use
of persuasive or binding precedent in judicial decision making by encouraging
an amount of certainty to the final outcome of cases.


Hudson believed that Lord Halsbury LC was relying on his own
logic all through when considering the statue, the beginning of the company and
the case of who was agent for whom, stating, no prior concepts to make the
momentous decision thus consolidating a precedent still used today and confirms
the separate identify of a company in legal system (veil of incorporation) and
the limited liability of shareholders. In this case, the interpretation of
these two concepts is interesting as both limited liability and separate legal
identity had been in law way before this date.

Hudson highlights Lindley L J’s use of moralistic language
in his judgement and disregard for the actual statute. The House of Lords
however disagree with the two rulings and upon appeal, reversed the above
ruling. Their judgement did not consider anything other than the statute and how
Salomon used it in establishing his company.

The 1st trial of the case was at the High Court,
on hearing Mr Vaughan Willams J considered the company to be a “Fraud”(pp 331),
that Mr Salomon should be held responsible for all the debts of the company.
Ruling that Mr Salomon and (A Salomon & Co Ltd) company were one and the same
business entity, he disregarded the limited liability and found in favour of

Diving in, Salomon v A Salomon & Co Ltd (1987) was a
case that Hudson (2012) pp 28 described as the creator of capitalism.  You will argue that Mr Salomon took advantage
of legislation – the Companies Act 1862 and stated a company. What began as a
sole trader, which he was liable for all debts and taxes became incorporated as
a Limited Liability Company thus, as an agent for A. Salomon & Co. Ltd, Mr
Salomon was protected from the consequences of the business failing, making the
company liable to its own debts. When the business failed, it was clear that Mr
Salomon could not be held responsible rather A Salomon & Co. Ltd. The liquidator and the
other creditors objected to this. As the business was a growing concern
when Mr Salomon sold it to A. Salomon & Co. all the actions above were
considered legal hence, the creditors could not technically call Mr Salomon

In relation to company law, the Salomon v A Salomon &
Co. Ltd (1897) is the most significant decision ever made by English law
system. It is essentially to note that a Business has a legal personality of
its own, when it’s form as a Limited Liability Company. This basically mean
when a business is started as a Limited Liability Company, the company is seen
as a legal entity with separate legal personality that is separate to its
owners, shareholders, directors and promoters. In the Salomon case, the House
of Lords confirmed this principle, that upon incorporation, a company is seen
as a legal entity separate from its members and shareholders.

Separate Legal Entity
is a proposition on which company law proceeds. It establishes and looks at how
a company exists and functions and how it is perceived perhaps, it defines that
a business is detached from another business or individuals in terms of
accountability. Interestingly, the rule of Separate Legal Personality has
become one of the disputed areas across jurisdictions and has experience
turbulence historically. However this principle has been abducted not only in
English company law but universal commercial law ever since the case of Salomon
v Salomon & Co. Ltd.

Company Act –
Taken from government legislative website (pdf), Company Act is an Act to
reform company law and restate the greater part of the enactments relating to
companies; to make other provision relating to companies and other forms of
business organisation; to make provision about directors’ disqualification,
business names, auditors and actuaries; to amend Part 9 of the Enterprise Act
2002; and for connected purposes. 8th November 2006

The UK Court of Appeal felt Salomon was a fraud, stating
that his company was a sham. However House of Lords saw this differently, stating
that the company was properly set up, there was no fraud and Mr Salomon was a separate
entity from his company and its shareholdings.

The question in this case was should Mr. Salomon debts take
precedence over the unsecured creditors?

Aaron Salomon was a Jewish leather boots and shoe maker in
England.  He traded initially as a sole
trader but later set up as a Limited Liability company, had himself and family
as the shareholders of the company.  He
lent the company money as a secured creditor and borrowed more money in the
name of Limited Liability Company but eventually got into financial trouble.

Salomon v Salomon & Co Ltd 1897 AC 22 got many
interest in terms of corporate law. The ideology from the case is simple,
citing a company is a separate legal entity recognised as a juristic person in
the legal system. The Salomon v Salomon & Co Ltd case was a complex one
with many layers.



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