Adams v Cape Industries plc

"Adams v Cape Industries plc" [1990] Ch 433 resolved a number of important issues under English law.

The case is most often cited for the comprehensive review of the corporate veil under English company law.

However, the case also addressed long-standing issues under the English conflict of laws as to when a company would be resident in a foreign jurisdiction such that the English courts would recognise the foreign court's jurisdiction over the company.

Background

The facts of the case are relatively complicated, but in brief, the company was an American registered company whose business was mining asbestos in South Africa. The company had become the subject of a class action lawsuit in the United States, and the company tried to avoid fighting the case in the American courts on jurisdictional grounds. The Plaintiffs obtained a judgment against the English company in the American courts, but as Cape had no assets left in the U.S., they then sought to enforce the judgment against the principal company in the group in the English courts.

Ruling

Corporate veil

The court accepted that the purpose of the corporate group structure set up by Cape Industries had been used specifically to ensure that the legal liability of a particular group would fall upon the particular group and not the defendant company in England. The court held that::"Whether or not this is desirable, the right to use a corporate structure in this manner is inherent in our corporate law. ... in our judgement Cape was in law entitled to organise the group's affairs in that manner ..."Subsequent to the decision (which has been followed), English law on this subject is accepted to be that the court may only pierce the corporate veil in the following circumstances:
#when the court is construing a statute, contract or other document;
#when the court is satisfied that the company is a "mere façade" concealing the true facts; or
#when it can be established that the company is an authorised agent of its controller or its members (corporate or human)The court cannot lift the corporate veil merely because it considers that justice requires it. Nor can it have regard to the economic reality, and regard a group of companies as a single entity.

The court held that one of Cape's subsidiaries (a special purpose vehicle incorporated in Liechtenstein) was in fact a façade, but on the facts this was not a material subsidiary such as to attribute liability to Cape.

Enforcement of foreign judgments

The court separately had to consider whether Cape had established a presence within the United States such that the English court should recognise the jurisdiction of the United States over Cape, and enforce a U.S. judgment against it (one of the criticisms made of the decision by U.S. lawyers is that the Court of Appeal fundamentally misunderstood the nature of the Federal system in the U.S.A., but that misunderstanding does not affect the general principles laid down by the court).

The Court of Appeal held that in order for a company to have a presence in the foreign jurisdiction, it must be established that:
#the company had its own fixed place of business (a branch office) in the jurisdiction from which it has carried on its own business for more than a minimal time; and
#the company's business is transacted from that fixed place of business.

On the facts the Court of Appeal held that Cape had no fixed place of business in the United States such that recognition should not be given to the U.S. judgment awarded against it.