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ODR 320 Semester Test Case List (2019)
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A case list of the most important cases for the ODR 320 Semester Test.
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ODR 320 (2019)STUDY THEME 4: COMPANIES
SEMESTER TEST CASE LIST
Study unit 1: legal concept of a company, legal personality
and piercing the corporate veil
SALOMON V SALOMON & CO LTD
FACTS
• Mr Aron Salomon was a sole trader for may
years and had carried on business as a leather
merchant and wholesale boot manufacturer
• He wished to expand his business and wanted
to enjoy the benefits of limited liability and
perpetual succession
• He sold his business to another company
• Salomon, his wife, daughter and two sons were
shareholders in the company
• Salomon and his 2 sons were directors of the
Company
• Salomon held 20 001 out of 20 007 shares issued by the company and was a secured
creditor, controlling shareholder, director and employee of the company
• The company’s business failed and a year later it went into liquidation
• The liquidator objected obo the trade creditors and contended that the company
was a sham and a scheme designed to enable Salomon to conduct his business in
the name of the company and thereby to limit his liability for the debts of the
company
o It was also contended that since Salomon owned all but 6 of the shares issued
by the company, he and the company were one and the same person and
that consequently the company’s debts were his debts
LEGAL QUESTION
• Is a company a separate legal person quite distinct from its shareholders and
directors?
JUDGMENT
• The House of Lords unanimously found in favour of Salomon
• It was held that the company had been validly formed and registered and was
therefore a legal person
• The court stated that once the company was legally incorporated, it was a
completely different person with its own rights and liabilities
• The motives of those who took part in the formation of the company = irrelevant
• The court held further that there was no requirement in the Companies Act that
required the subscribers to the memorandum to be independent or unconnected
• The court concluded that the business belonged to the company and not to
Salomon, who was not liable for the debts of the company
• There was no fraud on the part of Salomon, nor any fraud on the creditors of the
company
o “It seems to me impossible to dispute that once the company is legally incorporated
it must be treated like any other independent person with its rights and liabilities
appropriate to itself, and that the motives of those who took part in the promotion of
, ODR 320 (2019)
the company are absolutely irrelevant in discussing what those rights and liabilities
are.”
PRINCIPLES ESTABLISHED
• A company is a separate legal person quite distinct from its shareholders and
directors, and shareholders are in principle not liable for the debts and liabilities of
the company
• Motives of the promoters = irrelevant in discussing rights and liabilities
DADOO LTD V KRUGERSDORP MUNICIPAL COUNCIL
FACTS
• Under certain legislation enacted in the then
Transvaal province, Indians were prohibited
from owning immovable property in the
Transvaal
• In 1915 a company called “Dadoo Ltd” was
formed with two Indian shareholders: Dadoo,
who owned all the shares in the company
save for one share, and Dindar, who owned
the other share in the company
• The company purchased property in Krugersdorp and subsequently let the property
out to Dadoo in his personal capacity, where he carried on a general dealer’s
business
• The Krugersdorp Municipal Council contended that the company had contravened
the statute prohibiting Indian people from owning immovable property in the
Transvaal
JUDGMENT
• The Appellate Division rejected this argument on the ground that the statute did not
apply to companies, even if all the shares of the company were held by South
Africans of Indian origin
• The Court held that ownership by Dadoo Ltd was not ownership by its Indian
shareholders, and that property vested in the company cannot be regarded as
vested in its shareholders
• The statute in question had thus not been contravened by the company
• The nationality of members = cannot be attached to the company
• A company does not have a nationality
LE’BERGO FASHIONS CC V LEE AND ANOTHER
FACTS
• The first respondent, Lee, had signed a
restraint of trade agreement in her
personal capacity not to compete with
the applicant, but had then used her
company, the second respondent, of
which she was the sole shareholder and
director, to compete with the applicant
• The company had not been a party to the
restraint of trade agreement
LEGAL QUESTION
• Can the restraint of trade obligation be imposed on the company?
JUDGMENT
• The Court found that Lee had effectively carried on the business of the company
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