Daimler Co. Ltd. v. Continental Tyre& Rubber Co. (Great Britain) Ltd.
Authored By- Divya Surana
Key Words- Lifting of Corporate Veil, Enemy Country, Enemy Character of a Company, German Company incorporated in England, Alien Enemy.
Name of the Case- Daimler Co. Ltd. v. Continental Tyre& Rubber Co. (Great Britain) Ltd.
Equivalent Citation-  2 AC 307
Name of the Parties- Daimler Co. Ltd. and Continental Tyre& Rubber Co. (Great Britain) Ltd.
In the Court of- House of Lords
Bench-Lord Parker, Earl of Halsbury LC, Lord Atkinson, Viscount Mersey, Lord Kinnear, Lord Sumner, Lord Shaw and Lord Parmoor
This a foreign judgment decided in House of Lord. This case is related to the very important concept of Company Law i.e. lifting of corporate veil.
During World War 1, this case came into the picture, and the countries involved in the case were Germany, and England and these countries were enemies to each other at the time of war. Now, before going into facts, and issues of the case, let us understand the concept of the lifting of the corporate veil. The veil in this concept refers to separation meaning that Company and its members. Share-holders, directors are separate and protect them from being personally liable for the debts in the name of the company.
While we are aware of the fact that the company is an artificial person, it cannot work on its own; it is dependent on the members, directors, share-holders for its working. If a company is dependent on its members for its working then, it can be said that a company cannot do illegal acts on its own.
Background of the Case
This case is considered as an important cases to understand the relation of lifting of the corporate veil and how it applies in case of alien enemies. This case was decided in 1916.
Facts of the case
Daimler Co Ltd is a company incorporated in England by Germans.
Continental tire and Rubber Co Ltdis a company in England, Daimler Co Ltd (Daimler) entered into a contract with Continental Tyre and Rubber Co Ltd (Continental) for the supply of tire and rubber.
Some German Citizens had a company of manufacturing tires and these citizens incorporated a company (subsidiary) in England to sell tires manufactured in Germany. The company incorporated in England by German citizens i.e. Daimler, its all the shares except one was held by German citizens. Daimler filed a case of trade debt against the Continental.
Now, it was the time of World War 1, and the war was declared between England and Germany. After filing the case of trade debt against continental, the continental refused to pay the debt on the reasoning that the company incorporated in England was an alien enemy of Continental because at the time of war the citizens of other countries are considered an alien enemy. So, if the Continental will pay the debt then they will help the enemy country, as the money will be used against them and this was prohibited also at the time of war.
Fact in Issue
· Whether Daimler was a German company or not?
· Is the company capable of acquiring the enemy character?
Daimler argued that the corporation and its members are separate legal entities. As the company is incorporated in England so this principle will prevail over here.
Continental argued that the considerations which govern civil liability and rights of property in time of peace differ radically from those which govern enemy character in a time of war. When the action was instituted all the directors of the plaintiff company were Germans residents in Germany. In other words, they were the King's enemies, and as such incapable of exercising any of the powers vested in them as directors of a company incorporated in the United Kingdom. The company being an artificial person, the acts of company’s organs, its directors, managers, secretary, and so forth, functioning within the scope of their authority, is the company’s acts and may invest it definitely with enemy character.
The company is a living thing with a separate existence that cannot be swept aside as a technicality. It is not a mere name or mask or cloak or device to conceal the identity of persons and it is not suggested that the company was formed for any dishonest or fraudulent purpose. It is a legal body clothed with the form prescribed by the legislature…’- Lord Reading
The House of Lords held that though Continental Tyre Company was incorporated in England, its effective control was in the hands of Germans and, therefore, the company had acquired the enemy character. The Court lifted the veil and found out that since the decision making bodies, the board of directors and the general body of shareholders were controlled by Germans, the company was a German company and not a British company and hence it was an enemy company.
The concept highlighted here is the Lifting of the Corporate Veil.
Whenever the company is in de facto control of the people of the enemy country then it will also be considered as an alien enemy. No matter that the company was incorporated in the country other than enemy country.
There is a veil between the corporation and its members, directors, shareholders, etc. which protects its members from the liability of the company. In many cases, it seems like that the company and its members are the same so to determine that who is managing under the mane of company this veil is removed to avoid fraud.
Here in the instant matter majority shares and control were with the citizens of Germany so during the war it took the character of an alien enemy.