The Gazette 1984

APRIL. 1984

GAZETTE

Whittaker 18 Lord Denning was askance at the notion that the statutory provisions governing industrial disputes could be evaded in such a fashion. He demonstrated a preparedness to lift the veil in these circumstances. Such an approach is consistent with the view taken by the courts in other cases where parties have tried to make use of the separate personality concept in order to resile from legal obligations. In Gilford Motor Co. Ltd. -v- Home 19 the defendant had entered into a valid agreement not to solicit the plaintiffs customers or to compete with it for a certain time after leaving its employment. Upon cessation of his employment the defendant formed a company which carried on a competing business and caused the whole of its shares to be allotted to his wife and an employee of the company who were appointed to be its directors. An injunction was issued against him and the company. The order against the company was grounded on the fact that it had been formed to facilitate the defendant in breaking the agreement with the plaintiff and he was in control of its affairs. Similar considerations influenced the judgment in Jones -v- Lipman. 20 Here the defendant, after having agreed to sell the land to the plaintiff, sought to resist an order of specific performance by conveying the land to a company which he controlled. Russell J. described the company as a mere mask which the defendant held before his eyes in an attempt to avoid recognition by the eye of equity. Specific performance was awarded against both him and the company. Courts are less reluctant to pierce the corporate veil in relation to group entities. There is a tendency to heed the substance behind the legal form by treating a whole group of holding and subsidiary companies as one entity. This was an approach that found favour with Costello J. in Powers Supermarkets Ltd. -v- Crumlin Investments Ltd. and Dunnes Stores Ltd. Here a shopping centre was developed by Crumlin Investments Ltd. and a number of tenants took leases of different units in it. One of these leases was granted to Quinnsworth Ltd., a wholly owned subsidiary of Powers Supermarkets Ltd. The lease contained, inter alia, the following covenant by the lessor: "Not during the term to grant a Lease for or to sell or permit or suffer the sale by any of its tenants or so far as within the Landlord's control any sub or under tenants of groceries or food products in or over an area exceeding 3,000 square feet in any one unit forming part of the shopping centre unless so ordered or directed by any court of competent jurisdiction." The development was not a commercial success and Crumlin Investments Ltd. was ultimately acquired as a wholly-owned subsidiary by Dunnes Stores Ltd. The latter company formed part of the Dunnes Stores Group which numbered approximately 150 companies. Crumlin Investments Ltd. then proceeded to sell the fee simple in a unit in the centre to another member of the Group, which intended to open a supermarket in competition with Quinnsworth Ltd. Costello J. restrained them from implementing their objective. There are two strands to this decision. The second concerned principles of land law governing the running of restrictive covenants. The second defendants were bound by the restrictive covenant as successors in title of the Powers Supermarkets Ltd. -v- Crumlin Investments Ltd. and Dunnes Stores Ltd. 21

original covenantor, not being bona fide purchasers for value without notice. In this connection Costello J. referred to Wy lie's Irish Land Law 22 and London andS. W. Railway Co. -v- Gomm. 2i While the lessor company did not expressly covenant on behalf of its successors and assigns, it could not have been intended that the day after the execution of this lease the lessor would have been at liberty to convey the fee simple of a unit in a shopping centre so as to permit a grantee of the fee simple to trade in a way forbidden to a lessee of the same unit. Thus, productive use was made of the presumed intention of the parties. An earnest determination not to defeat the reasonable expectations of the covenantee is also manifest in the judicial rejection of the rule of separate corporate personality as applied to the facts of this particular case. Costello J. firmly stated that both Crumlin Investments Ltd. and Dunnes Stores (Crumlin) Ltd. should be regarded as constituting part of a single entity, namely the Dunnes Stores Group. There was no materiality in the difference in legal nomenclature. The Dunne family were actively involved in the running of the Dunnes Stores Group of Companies, and their wishes prevailed in respect of each company in the group. Purchases of stock on a company's behalf were made by the purchasing panel of the Dunnes Stores Group who apportioned liability for purchases to each trading company in the Group to whom the goods were invoiced. There was no proper system of directors and shareholders meetings. The companies were controlled by members of the Dunne family (or their servants and agents) meeting informally to manage the affairs of the Group as a whole or by individual members taking decisions on the family's behalf. Costello J., in addition called attention to the derisory consideration for the conveyance, the absence of the usual covenants and the failure to register the deed. All these factors strongly suggested that the various corporate hats worn by members of the Dunne family were a facade concealing the true facts. The learned Judge however did not rest content with such a conclusion. Instead of confining himself to the specifics of the case he proceeded to enunciate a broader and more general rule. Costello J. said that the Court may, if the justice of the case so requires, treat two or more related companies as a single entity so that the business notionally carried on by one will be regarded as the business of the group or another member of the group if this conforms to the economic and commercial reality of the situation. Two English authorities were mentioned in support of this proposition. The first was Smith, Stone and Knight -v- Birmingham Corporation 24 where Atkinson J. enumerated a set of points which a court might bring into the reckoning when deciding whether or not to lift the veil in relation to a group of associated companies. The first point was: were the profits treated as the profits of the parent company? Secondly, were the persons conducting the business appointed by the parent company? Thirdly, was the parent company the head and brain of the trading venture? Fourthly, did the parent company govern the adventure, decide what should be done and what capital should be embarked on the venture? Fifthly, did the company make the profits by its skill and direction? Sixthly, was the parent company in effectual and constant control.

More controversially, Costello J. also relied to some extent on D.H.N. Ltd. -v- Tower Hamlets London Borough Council 2i a case dealing with the payment of compensa- 99