LAW AND COMMERCE
Prest v Petrodel versus Alwie v Tjong: A Comparative Study Muhammad Hasif, University of Southampton
Introduction Arguably one of the most important decision in the realm of company law was provided by the House of Lords in Salomon1, where it was ruled that an incorporated company is a separate legal entity, with its own independent rights and that “the motives of those who took part in the promotion of the company are absolutely irrelevant in discussing what those rights and liabilities are”. In Singapore, this has been codified in section 19(5) Companies Act, where it is stipulated that an incorporated company is capable to exercise “all the functions of an incorporated company and of suing and being sued”.2 The economic and legal benefits of having this “legal fiction” of the existence of a company as a legal person, is highlighted from the lack of liability it provides the company’s members, shareholders, and investors. However, this separate legal entity principle has exceptions in both jurisdictions. In the United Kingdom (“UK”), the exceptions to the sanctity of this rule has been explored and reasoned for by the UK Supreme Court in Petrodel Resources Ltd v Prest (“Prest”).3 In Singapore, Chong J in the High Court Tjong Very Sumito and others v Chan Sing En (“Tjong (HC)”)4 analysed the historical development to the rule and reasoned for the framework for the exception that would exist in Singapore. This discourse aims to discuss the difference in the reasoning between the two cases as well as provide a comparative analysis of each approach. Before actually critically analysing the two cases, this discourse needs to be scoped. The first scope is that the discourse will focus mainly on cases where the companies that were at the focal point of the issues are one-man companies. The main reason for this is the similarity in facts and how conceptually important the fact that the company in question is a “one-man company”. In Salomon, the House of Lords tried to grapple with whether the wording in the legislation in 18605 meant to confer an exclusion to definition of an 1
Salomon v Salomon [1897] AC 22 (HL).
2
Companies Act (Cap 50), 2006 Rev Ed.
3 415.
Petrodel Resources Ltd v Prest [2013] UKSC 34; [2013] 2 AC
4 Tjong Very Sumito and others v Chan Sing En [2012] SGHC 125; [2012] 3 SLR 953.
38
5
Companies Act 1860; Salomon (op cit n 1) at 53
incorporated company just based on the fact that the company is under absolute control of a single person. Since, the UK courts have had to deal with a multitude of legal issue dealing with one-man companies,6 such as in recent times; employment,7 whether one man behind a corporate director is the de facto director of the that company,8 whether the defence of ex turpi causa could be raised due to the fraud of the one man,9 and the main exception to the separate legal entity principle in Salomon.10 In Tjong (HC), the High Court in Singapore dealt with companies that were primarily ran by a single person. Conceptually, the reason that the puzzle still exists could be pinned to the fact that the “control” of the company is vital to the issue of the wrong that was done by the company. If the injustice could be pinned to a person who had control over the company, one that could bear the personal liability of the wrong, it would seem that the person is the logical choice for that liability to be pinned. However, the main issue with a company is that although it is a legal person, assigning liability and the enforcing the liability would be difficult due to the ease for the option of insolvency, a main objective and benefit of incorporation. Thus, if the liability for an injustice, be it a breach of contract or an illegitimate moving of assets, could be pinned to a single person in control of the company, it would be easier to reverse the injustice and enforce the liability. Therefore, this discourse would focus on the issue of piercing the corporate veil that arise from cases of companies run or controlled by one man.
Do Legal Obligations Outside of Company Law Create an Exception to Salomon? A preliminary point of discussion is the effects that other legal obligations have on the principle of separate legal entity. The scenario in Prest is hardly a commercial setting. The case concerned the ability of the court in divorce proceedings to make orders in favour of a wife 6 Brenda Hannigan, Wedded to Salomon: evasion, concealment and the confusion on piercing the veil of the one-man company (2013) 50 Irish Jurist 11. 7 Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld [2009] 2 BCLC 273. 8 Re Paycheck Services 3 Ltd, Revenue and Customs v Holland [2011] 1 BCLC 563. 9
Stone & Rolls Ltd v Moore Stephens [2009] 2 BCLC 563.
10 VTB Capital PLC v Nutritek [2013] 1 BCLC 179 (“Nutritek”); Prest (op cit n 3).