The courts have failed to formulate a single coherent principle according to which corporate veils can be pierced in the form of common law principles. Courts seem to give different general formulations as to when the corporate veil will be lifted in relation to common law principles. It will be argued that the Cape Pacific judgment represents a move away from the categorizing approach towards a balancing of the need to preserve the existence of the separate enterprise against the policy considerations that justify piercing the corporate veil (the balancing approach).21.
INTRODUCTION
THE LEGAL NATURE OF CORPORATE PERSONALITY
In terms of this theory, granting legal personality is a concession by the state. Suffice it to say that this theory is considered by many academics to be the most acceptable and satisfactory approach. 40 It aims to explain the nature of legal personality in relation to any underlying assumptions about the nature of social life.
THE EFFECT OF INCORPORATION
It follows that the death of a member will not affect the existence of the company. Another obvious consequence of the fact that a company is a separate legal entity is that it may have property that is different from that of its members. This means that the members have no ownership interest in the property of the company.47 Thus the court in Shipping Corporation ofIndia Limited v. Evdom Corp48 stated that.
THE COMPANY AS A LEGAL DISTINCT PERSON
Introduction
Even though a corporation is a separate legal entity, members can be held personally liable for the actions, liabilities and obligations of the corporation in a wide variety of circumstances. Thus, in certain cases, the courts are willing to look through the corporate veil to reinforce the facade of a company or even ignore the separate existence of the legal entity. This is often described as piercing the corporate veil (or lifting the corporate veil).77 The piercing the corporate veil doctrine states that in certain circumstances a court has jurisdiction to enforce the principle of the separate legal existence of a corporation to ignore.
But when the court thus pierces the corporate veil, it does so with a view to assessing the rights and duties of the parties in the case brought before it. Even when a corporate veil is pierced in a particular context, the corporation will still be recognized as valid in other circumstances. The court often pierces the corporate veil in an attempt to prevent the misuse of corporate personality by members, directors, employees and agents of a corporation.
It is assumed that if the corporate personality was used as a device to cover. However, it is disappointing that courts have still not laid down a more coherent principle according to which the corporate veil must be lifted at common law. It is the author's contention that the common law principles hardly give one an idea of what conduct does or does not trigger the piercing of the corporate veil doctrine.
87 Le Davids, 'The lingering question: some perspective on lifting the corporate veil' (1994) TSAR at 155.
THE ENGLISH APPROACH TO PIERCING THE VEIL OF CORPORATE PERSONALITY
Introduction
Based on the aforementioned decision, the writer contends that lifting the corporate veil was not appropriate in Lipman's case. For example, in Hilton v. Plustile123, the Court of Appeal held that the plaintiff was not entitled to remove the corporate cover since he had full knowledge of the facts at all material times. 125 Applying this test to the facts before it, the court held that the proven motive of the author may be very important.
128 The court in Adams v Cape Industries, supra, confirmed the principle that a court will pierce the corporate veil where a defendant, through a corporate veil structure, seeks to avoid the rights to damages against him that the third party already possesses. For example, in the Re Bugle Press Ltd judgment, the use of a company as a vehicle to cover fraud was refused by the court. The court may ignore the separate existence of the company and treat the actions of a company as the actions of the person concerned.135.
It is accepted that a court will lift the corporate veil in circumstances where the company can be regarded as merely an agent or instrument of control. Therefore, where the company is not actually carrying on its own business or affairs, but is merely acting in furtherance of the business or affairs of its controlling shareholders, the court will lift the corporate veil.14o. 34;alter ego" of the controlling shareholders indicates that the court is using an agency test.
146 In this case, the defendant acquired property occupied by the plaintiff's wholly owned subsidiary.
THE SOUTH AFRICAN APPROACH TO PIERCING THE VEIL OF CORPORATE PERSONALITY PRIOR TO THE 1995 CAPE PACIFIC
Thus, a categorization of cases where the court may be willing to pierce the corporate veil may lead to a strict approach, particularly in those circumstances where there has been no abuse of the corporate entity and the company itself wants the veil pierced. .174. He claimed that he had not accepted, as a guarantee, for the change of the principal debt. 192. In short, the Lategan case demonstrates the tendency of courts to rely on categories for the purpose of piercing the corporate veil.
The first respondent was the sole director and shareholder of the second respondent, the company.204. This last category would include, for example, the attribution of the personal qualities of the corporations to the company and the legal breaking of the corporate veil. It is unfortunate that the court in Botha's case did not clearly explain what actions constitute improper conduct or what improper conduct would justify piercing the corporate veil.
Domanski218 believes that the decision was harsh on the seller, who had done everything that could reasonably be expected of her in terms of the purchase agreement. The writer states that considering the facts of the case and the test of a. Based on the failure of the court in Shipping Corp to address the above issues, the writer believes that the case provides little additional support to our criticism of the common law approach to piercing the corporate veil to stop.
In a nutshell, the reported decisions discussed in this chapter illustrate the courts' inconsistency in lifting the corporate veil.
CAPE PACIFIC DECISION AND POST 1995
Introduction
It was argued on behalf of Cape Pacific that the court should pierce the corporate veil as effective control had always rested over the companies, LCI and GLI. Lubner and the purpose of transferring the shares in the company had been to Cape Pacific's c1aim.241. Cape Pacific subsequently appealed the trial court's decision to the Appellate Division.
Williams255 notes that in applying these principles to the facts of the case, the court held that the following considerations required the court to disregard it. Based on the Appellate Division's decision, it is the writer's submission that the trial court in refusing to lift the corporate veil appears not to have accepted it. The transfer of shares to the defendant company was an attempt to avoid the claim of the plaintiff. 264.
Taking these factors into consideration, it is submitted that the court should have lifted the corporate veil of the first and second defendants by adopting the balancing approach (balancing test). It is evident in this case that the strict application of the separate entity principle by the court has brought unfair results. The Appellate Division rightly held that the third defendant (Lubner) completely controlled the affairs of the first and second defendants.
It is submitted, however, that the court's argument that the first defendant's conduct was improper and the refusal to find that the same improper conduct had.
GENERAL SUMMARY
In the English context, the problem can be attributed to the fact that the courts have invariably relied on a number of separate and unrelated categories of conduct on which decisions to pierce the corporate veil are based. It has been found that, like their English counterparts, courts in South Africa have chosen to rely on a number of discrete, unrelated categories of conduct as grounds for piercing the corporate veil. The same is true of the "unconscionable injustice" proposed in Botha's case.289 It has been argued that the unconscionable injustice test provides little help in determining the circumstances in which it would be justifiable to drill or to remove the corporate veil.
In a nutshell, the test formulated in Botha fails to define which actions constitute improper conduct or which conduct could trigger the piercing of the corporate veil, nor does it define what constitutes unconscionable injustice. Overall, the test formulated in Botha is not convincing, because the court did not view the facts as a call to pierce the corporate veil. It has also been argued that at the very least the balancing approach forces the airing of the disputed issues.
It has also been argued above that the decision in Cape Pacific confirms that although a company has a legal personality in its own right, at common law courts have the power to pierce the corporate veil, but will not do so lightly. The fact that the Appellate Division took the view that the law is far from settled regarding the circumstances in which it would be permissible to pierce the corporate veil raises the question of whether there is wisdom in the development . Given the fact that the Appellate Division in the Cape Pacific decision was unwilling to commit itself to laying down or even identifying a general principle regarding the lifting of the corporate veil suggests that it is necessary to asking this question.
However, we still lack a single coherent principle on which to base decisions to pierce the corporate veil in the commons.
BLIBLIOGRAPHY
Gallagher, L & Ziegler, P Lifting the Corporate Veil in the Passion of Justice (1989) Journal of Business Law. Larkin, Regarding Judicial Disregarding of the Company's Aparte Identity, Piercing the Corporate Veil (1989) SA Handelsregjoernaal 227 -238. Van Wyk, S Corporate Personality and a Comparative Overview of the Judicial Disregardingof the Corporate Veil (1992) Universiteit van Natal Regsbiblioteek.
