Piercing the Corporate Veil in Australia: A Discussion on the Courts' Reluctance to Depart from the Separate Entity Principle

Question 1
“Frequently the courts have been requested to look behind the corporate veil [of
companies] ...where to all outward appearances they seem to operate as a single entity. The
Australian courts...have been reluctant to depart from the separate entity where there is
no legislation requiring them to do so.”
Do you agree with the above quote? Discuss your reasons.
It has been regularly stated that the courts in Australia are generally reluctant to ignore the
principle of separating the identity of the corporations. This doctrine is considered as one of the
basic principles of corporations law. The doctrine of separate identity and also the notion of
limited liability of a corporation can be described as the reasons which have immensely helped in
increasing the popularity of corporate form in Australia. But, it needs to be noted that under
some circumstances, the courts have been willing to look beyond the separate existence of a
corporation and to hold the persons who are in charge of the affairs of the company. In such a
case, it is said that the corporate veil has been lifted by the court.1 This can be done by the courts
where evidence is present which suggests that the parties have used the corporate form for the
purpose of committing fraud or for avoiding their personal legal obligation. In this context, it is
worth mentioning that such cases are very rare in Australia. Generally, the cases where this issue
has been raised have two be decided on the basis of the facts of the case in place of relying upon
the established exceptions to the principle related with a separate identity of a corporation. An
1 Helen Anderson, ‘Piercing the Veil on Corporate Groups in Australia: The Case for Reform’ [2009] 33 Melbourne
University Law Review 333

example in this regard can be given of Briggs v James Hardie.2 In this case, Rogers AJA has
stated that there is no common, unifying theory present in this regard, which may define the
occasional decision that has been made by the courts of lifting the corporate veil. In this regard,
it also needs to be noted that only on account of the reason that the corporate form has been
elected by a person to limit the liability of such person for the debts of the business or a company
with limited capital has been established, this fact alone cannot be treated as a sham or fraud on
the part of such person.3
The act of lifting the corporate patent can be described as the situation where the existence of the
company has been ignored by the court, on account of the fact that the owners of the company
failed to keep formalities and requirements. The act of piercing the corporate bail by the court
can be described as a judicial act. Hence, various judges have tried to provide a brief meaning to
this act. A similar attempt was made by Staughton J in Atlas Maritime v Avalon (No 1), where
he used the following words for describing the term.4 Therefore, he said that the term piercing
the corporate veil can be used for considering the obligations and privileges enjoyed by the
corporation as the rights and liabilities that have been imposed on the shareholders. In this way,
lifting the veil or looking beyond the corporate veil is to consider the shareholding in the
company for legal purpose.5 As compared to this situation, Young J had mentioned in Pioneer
Concrete Services Ltd v Yelnah Pty Ltd, that the act of lifting the corporate veil can be described
as follows.6 He said that whenever a company is formed, there is the creation of a distinct legal
entity. However there are certain occasions when it may be decided by the court that it needs to
2 Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549
3 Jason Harris, Anil Hargovan, ‘Corporate groups: the intersection between corporate and tax law Commissioner of
Taxation v BHP Billiton Finance Ltd’ (2010) 32 Sydney Law Review 723
4 Atlas Maritime Co SA v Avalon Maritime Ltd (No 1) [1991] 4 All ER 769
5 Ian Ramsay and David Noakes, ‘Piercing the Corporate Veil in Australia’ (2001) 19 Company and Securities Law
Journal 250
6 Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 25

look beyond these legal personality and find the real controllers of the company. Keeping in
view of these definitions, this doctrine can be simply explained as the direct opposite of the
principle of limited liability. Even if there are a number of methods that are available in case of
the Limited liability of a company, a problem is also present as the application of this notion may
cause problems of over inclusion that may prove to be disadvantageous for the creditors of the
company.7 Therefore it can be said that the law has overprotective of this concept of corporate
law. As against this situation, when the court decides to lift the corporate veil, the personal assets
of the members of the company may also become a part of litigation in the same way as is the
case with sole proprietors or partnerships.
The courts have been provided exclusive jurisdiction by the common law that they may look
beyond the corporate veil or lift the corporate veil, anytime for the purpose of evaluating the
operating mechanism that is working in cooperation.8 In view of the wide range of remedies that
may be delivered by the courts, the issue of piercing the veil is one of the significant issues, that
is brought before the courts under the common law. But in this regard, it also needs of mentioned
that informal organizations, widespread censure, has to be faced by the application of these
notion due to reason that it sacrifices substance for form. Probabilities were the reasons that
Windeyer J had made the comment in Gorton that as a result of this approach, the law has been
turned into "unreality and formalism".9
Hence, when a decision is made by the court to pierce the veil and look beyond separate
personality of the company, the courts are going to consider the members of the company as the
owners of the assets that were held by the company had also as if the members of the company
7 Anil Hargovan, ‘Piercing the Corporate Veil on Sham Transactions and Companies’ (2006) 24 Company and
Securities Law Journal 436
8 Anil Hargovan and Jason Harris, ‘Piercing the Corporate Veil in Canada: A comparative analysis’ (2007) 28 The
Company Lawyer (UK) 58
9 Gorton v Federal Commissioner of Taxation (1965) 113 CLR 604