Daimler co., Ltd v. Continental Tyre and Rubber co. (Great Britain), Ltd.

 

CASE COMMENT:

 

Daimler co., Ltd v. Continental Tyre and Rubber co. (Great Britain), Ltd., 1916 AC 307

Equivalent citation: (1916-1917) All ER Rep. 191

 

Bench:

Earl of Halsbury

Viscount Mersey

Lord Kinner

Lord Atkinson

Lord Shaw of Dunfermline

Lord Parker of Waddington

Lord Sumner

Lord Paramour

 

 

APPELLANT: ……………………………………………………….DAIMLER CO. LTD.

RESPONDENT:………………………………..CONTINENTAL TYRE AND RUBBER CO.

 

YEAR OF JUDGEMENT: 1916

CITATION: (1916-1917) All ER Rep. 191

INTRODUCTION

Under the Companies Act 2013, Company has been defined under Section 2 (20) i.e. company means “a company incorporated under the Companies Act 2013 or under any previous company law”, the formation of a company and its registration is done under this act.

The company law doesn't define the strict legal meaning of a company. It has many advantages and a few disadvantages. The most important feature of company law is that it has a “SEPERATE LEGAL ENTITY” which means it can acquire, enjoy, and at the same time dispose of the property it owns. it is treated as a real person other than its members. But sometimes the members of the company start to take advantage of the legal entity for their own benefit. Therefore, it is necessary to “LIFT THE CORPORATE VEIL” between the company and its members.

 

 

 

PROVISION OF LAW INVOLVED:

 

 

• Article 102, sub-section of the 17 Companies (Consolidation) Act, 1908 the directors are empowered “(1.) To institute, conduct, defend, compound, or abandon any legal proceedings by or against the company or its officers, or otherwise concerning the affairs of the company
• Article 14(1) of the Companies (Consolidation) Act, 1908 The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed and sealed by each member. 
• Article 115(1) of the Companies (Consolidation) Act, 1908 If at any time the number of members of a company is reduced, in the case of a private company, below two, or, in the case of any other company, below seven, and it carries on business for more than six months while the number is so reduced, every person who is a member of the company during the time that it so carries on business after those six months, and is cognizant of the fact that it is carrying on business with fewer than two members, or seven members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and maybe sued for the same, without joinder in the action of any other member.

 

 

ISSUES:

1. Whether the Daimler co. ltd is a separate legal entity or not?
2. Whether the company is an enemy company and against the public policy?

 

 

 

FACTS OF THE CASE:

 

Before the war between Great Britain and German, an English company was formed by Germans in  England through which they used to manufacture the motor car tyres in Germany and sell those in England. The company was incorporated in England but all the manufacturing work was carried on in Germany by which was regulated and managed by Germans only. This German company has most of the shares in this English company except one share and all the directors were Germans who resident in Germany. Therefore the real control of this English company was in the hands of the German company. During the First World War, The English company commenced an action to recover a trade debt. The question that arises here is whether the company is an enemy company and therefore is barred to maintain the action or not.

CONTENTION:

 

Daimler argued that the corporation and its members are both separate legal entities as the companies incorporated in England this principle will prevail over there.

 

Continental argued that the considerations which govern civil liability and right of property in a 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 German residents in Germany, in other words, they were the king's enemy as such incapable of exercising any powers vested in them as directors of a company incorporated in the United Kingdom. the company is an artificial person, the act of companies organs its director, manager, secretary and so forth functioning within the scope of their authority is the Company’s Act and may invest its definitely with an enemy character that “ 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 clock 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.”

 

RATIO:

 

I think that the analogy is be found in control an idea which if not very familiar in law, is of capital importance and is very well understood in commerce and finance. The act of companies organs i.e. directors, managers, secretaries and so forth functioning within the scope of their authority are the Company’s Act and may invest its definitely with enemies character it must at least be prima facie relevant, certainly, I have found no authority to the contrary. the court said that the actions on the character of the members of the company are capable of changing the nature of a company and a company can acquire enemy character on the basis of the character of its members.

 CONCLUSION:

 

This judgment was a very important judgment, Where the classical approach is that a company is a separate legal entity having the capacity to own a property and dispose of it and at the same time, having assets in its name. As we know from the facts that during the wartime the majority of the shareholders are from the enemy country and they used to manufacture the tyres from the German company. In such time having transactions against the enemy company may result in consequences and the court has rightly established that in such war time the enemy company may act accordingly to its shareholder.

The House of Lords held company do incorporate in the UK was an enemy company its real character was German. its directors, shareholders except one and its actual beneficiaries were Germans who had become enemies of England during the war, the company was not allowed to proceed with an action to recover its trade debts. House of Lords laid down that the company may assume enemy character when persons in De facto control of its affairs are residents in any enemy country or whatever residents are acting under the control of enemies. However, when there's no danger to public interest the court may refuse to Pierce the corporate veil as held in people’s Pleasure Park company v. Rohleder 1908.