Application of law Assignment PDF

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Contents
Solution.......................................................................................................................................................2
Issue........................................................................................................................................................2
Relevant Law...........................................................................................................................................2
Application of law...................................................................................................................................4
Conclusion...............................................................................................................................................5
Reference List.............................................................................................................................................6

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Solution
Issue
Whether Formula Factors has the power to sue George for the breach of his employment contract
or whether George can escape by taking the shield of Separate legal entity concept?
Relevant Law
When any person intends to initiate any kind of business, then, one of the methods is to
incorporate a company. When any business is registered as per the law of the land then it is
regarded as a company which has a separate legal personality in law.
Separate legal personality or the separate corporate personality is a principle that was established
in the leading case of Salomon v A Salomon & Co. Ltd [1897]. In the leading case, the business
which is run by Salomon is in the form of a sole proprietorship. The business is then transferred
by him to a company, Salomon Ltd which is incorporated by Salomon himself along with his
family members. The transfer was returned to Salomon in the form of shares and debentures.
After the failure of the company and upon its liquidation, Salaam was able to seek return based
on the secured assets; however, the unsecured creditors were not able to recover anything. The
liquidator established that the company must be considered as a sham as the same was
incorporated in order to unjust upon the unsecured creditors. The House of Lords submitted that
the company formulated by salmon was a distinct entity in law and has its own artificial legal
personality. Thus, the acts of Salomon are distinct from the company and the two are separate
entities in law. (Ramsay and Noakes 2001)
The concept was retreated in Lee v Lee's Air Farming Limited (1961) wherein it was held that
once a company is incorporated it acquires a separate corporate personality in law. The officers
of the company are distinct from the company and the acts that are taken by them in the name of
the company will hold the company personally liable for the same and no repercussions will fall
upon such officers of the company. The separate corporate personality is also analyzed in Farrar
v Farrars Ltd., (1888) wherein it was held that the company is distinct personality in law and has
the capacity to acquire property in its own name. (Gibson and Fraser 2001)
But, this concept of separate legal personality is not isolated and is attached with the concept of
piercing of the corporate veil of the company. It is submitted that when any company is

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incorporated then it has a separate legal personality in law, but when the incorporation of the
company is carried out with the intent to conduct fraud or cheat or sham, then, it was held by the
courts in the leading case of Brewarrana v Commissioner of Highways (1973) that in such
situation, the corporate legal personality of the company must be disregarded and the distinction
that is made amid the officers of the company and the company should not be held justified. In
such situations, the acts of the officers which are taken by them in the name of the company must
be considered as their own acts and must be held personally liable for the same. In Atlas-
Maiitime Co. v. Avalon Maritiine Lt [1991] the court held that to disregard the separate corporate
personality of the company and has submitted that the court has the power to look behind the veil
of the company and hold the officers liable if any fraud is incurred by them.
In the leading case of Re Edelsten ex parte Donnelly (Unreported), a fraud is incurred by the
officers of the company and the court has disregarded the separate legal personality of the
company and lifts the veil and holds the officers liable for the acts that are undertaken in the
name of the company. Further, in the leading case of Donnelly v Edelsten (1994), the courts have
again pierced the veil of the company and disgraced the separate corporate personality of the
company on the incurrence of fraud on the part of the officers of the company.
In Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988), the separate corporate personality
of the company was disregarded on the basis that the main reason for the establishing of the
company was hidden and mainly was to deceive the other parties and thus the veil must be
pierced. Piercing of veil on the ground of façade is also held in the leading case of Peate v
Federal Commissioner of Taxation (1964).
Thus, the concept of separate legal personality is a very important concept but the courts are not
reluctant to disregard the said concept on the ground that there is some façade or fraud that is
incurred by the officers of the company by taking the shield of the concept of separate legal
personality of the company.
Now, when any company hires any person then it enters into an employment contract with such
person. One of the clause that is made part of such employment clause is the restrain clause
according to which the employee is restrain to carry out similar business within some
geographical region or for certain time duration after and during the employment. Such clause