Read the full judgment text of CACV 000071/1995 on BabelCite. This Court of Appeal judgment was delivered on 11 July 1995 before Nazareth, V.-P., Bokhary and Liu, JJ.A..
Civil law – company law – lifting the corporate veil – whether the corporate veil may be pierced to make a corporate group member liable for the obligations of a related company where the corporate structure was used from the outset to avoid (rather than to evade) the incurring of legal obligations – two charterparties made in Hong Kong on 18 September 1990 and 10 October 1990 – plaintiff China Ocean Shipping Co. chartered its vessel Gao Yang for the carriage of bulk cargo from China to North Korea – Panamanian company Mitrans Maritime Panama SA named as charterer in both charterparties – each charterparty contained an arbitration clause providing for arbitration in Hong Kong – arbitrators awarded that Mitrans Panama pay the plaintiff US$126,556.58 in principal, two lots of interest totalling US$28,660.03, and HK$24,050.70 in costs – Mitrans Panama paid nothing – plaintiff sued defendant Mitrans Shipping Co. Ltd, a Hong Kong company, in Action No. MP3033 of 1993, seeking to enforce the award by lifting the corporate veil on the basis that Mitrans Panama was a facade – plaintiff pleaded that Mitrans Panama's president was a director and shareholder of the defendant, that Mitrans Panama's treasurer was the defendant's secretary, that Mitrans Panama was not registered as a foreign company in Hong Kong, and that all correspondence was replied to by the defendant – Leong J. refused to strike out the Statement of Claim – defendant appealed – applicable principles drawn from Adams v Cape Industries Plc [1990] 1 Ch 433 and Salomon v A Salomon & Co Ltd [1897] AC 22 – the right to use a corporate structure to ensure that legal liability falls on one member of a group rather than another is inherent in corporate law – distinction between evading an existing legal obligation and using a corporate structure to avoid incurring any legal obligation in the first place – using a corporate structure to evade legal obligations is objectionable and the court may lift the veil to preserve such obligations – but using a corporate structure to avoid incurring any legal obligation is not objectionable, and the court will not lift the veil to create obligations – plaintiff's reliance on Creasey v Breachwood Motors Ltd [1993] BCLC 480 distinguished because that case concerned the evasion of a contingent liability – here no liability or obligation ever arose on the defendant's part, as it never entered into the charterparties – the plaintiff chose to deal with Mitrans Panama without requiring a guarantee – the award was made against Mitrans Panama, not the defendant – appeal allowed – Statement of Claim struck out – action dismissed.
Legal issues: Lifting the corporate veil to create legal obligations where none existed
Outcome: Appeal allowed; Statement of Claim struck out and the action dismissed against the defendant.