1. UNIVERSITY OF ZIMBABWE
FACULTY OF LAW: DEPARTMENT OF PRIVATE LAW
NAME MATANDIRE JAIROS BLESSED
REG R135960H
COURSE LAW OF PUBLIC AND PRIVATE ENTERPRISES (LB012)
LECTURER MR B MUSHOHWE
Question
“ The Co is at law a different person altogether from the subscribers to the
memorandum and though it may be that after incorporation the business is
precisely the same as it was before, the same persons are managers, and the
same hands receive the profits , the Co is not in law the agent of the
subscribers or trustee for them. Nor are the subscribers as members in any
way, form or shape except to the extent and in the manner provided by the
Act. That l think is the declared intention of the enactment” per Lord
MacNaughten in Salomon v Salomon & Co Ltd 1897 AC 22
Critically discuss the above statement in Salomon’s case in view of the legal
development corporate personality. [20]
Due date: 01 October 2015

2. It is a trite principle of law that if a company is incorporated in terms of the Companies Act it
becomes a legal persona distinct from its corporators. The relationship of a shareholder to a
Company, which is limited by shares is in itself the relation of a Principal and agent or the
reverse, that the assets of a company belongs to it and the acts of its servants and agents
are its own, the shareholders have no property in its assets and no personal responsibility
for those acts. The Corporate personality of companies and limited liability of shareholders
has its route in the ruling of the House of Lords in Salomon v Salomon where the courts
emphasized that it will not normally look beyond the facade of the company to the
shareholders who comprise it. In the ensuing discourse it shall be shown that the legislature
can forge a sledgehammer capable of cracking open the corporate shell and that even
without the aid of a legislative sledgehammer, courts have sometimes been prepared to ‘lift
or pierce the corporate veil’1
in cases of fraud, abuse of corporate form, where the company
is a sham, cloak or alter ego or where justice can otherwise not be done if the corporate
personality of a company is not interfered with. It suffices to mention at this point as will be
further enunciated that the law regarding lifting the corporate veil2
is not settled, it is
incoherent and unprincipled3
.
In Zimbabwe the legislature has fully recognised the separate existence of a corporate from
its corporators, section 9 of the Companies Act provides that upon incorporation, “a
company shall have the capacity and powers of a natural person of full capacity in so far as
the body corporate is capable of exercising such rights4
”, this means that a company can
1 Gower
2 Lifting the corporate veil means disregarding the dichotomy between a company and a natural
person behind it and attributing liability to that person where he has abused corporate personality as
per Cape Pacific v Lubner Controlling Investments(pty) ltd & others 1995 (4)SA 790
3 J Farrar, ‘Fraud, Fairness and piercing the corporate veil’ (1990) 16 Canadian Business Law Journal
474,478
4 Section 9 of the Companies Act Chapter[24:03]

3. acquire rights and incur obligations on itself and can sue and be sued in its own name5
. This
provision has its background in the English the case of Salomon v Salomon6
,where despite
Salomon being the sole beneficial shareholder (with six of his family members being
shareholders also but his nominees) and was the sole director of the company, and as
contented by the Plaintiff’s counsel he was inseparable from the company which was his
agent or alter ego, the House of Lords ruled that the company and its members are two
separate entities at law and absolved Mr Salomon from paying the liquidated company’s
debts in his personal capacity, the same concept of separate legal persona of a company
from its shareholders was applied in the case of Macaura v Northern Assurance Company
Limited7
, where the sole and major shareholder claimed compensation from the insurance
company in relation to the timber he personally insured and was destroyed by fire, he was
held not to have an insurable interest in the assets of a company he owned, which also owed
him a great sum of money, thereby making it apparent that a company and its shareholders
are distinct persons and courts generally are reluctant to lift the veil of corporate
personality.
The courts are generally loath to disregard the veil of corporate personality and to find the
directors and shareholders of a company personally liable for acts done by a company. The
courts has no general discretion to disregard the company’ separate legal personality
whenever the court considers it just to do as was observed in Mkombachoto v CBZ8
,this was
also clarified in Cape Pacific Ltd v Lubner Controlling Investments9
in these words, “ it is a
salutary principle that courts should not lightly disregard a company’s separate personality,
5 Section 2 of Constitution of Zimbabwe[ Amendment no 20 Act 2013]
6 Salomon v Salomon & Co Ltd 1897 AC 22 at 51
7 Macaura v Northern Assurance Company limited [ 1925] AC 619
8 Mkombachoto V CBZ HH 10-2002
9 Cape Pacific v Lubner Control investments (pty) Ltd & Ors 1995 (4) SA 790

4. but it should strive to give effect to it, to do otherwise would negate and undermine the
policy and principles that underpin the concept of separate corporate personality and the
legal consequences that attach to it…”,showing the reluctance of the court to disregard the
corporate veil, more so in the case of Amlin (pty) Ltd v Van Kooij10
,Dlodlo J in his obiter dicta,
opined that opening the curtains or piercing the corporate veil is rather a drastic remedy, for
that reason it must be resorted to rather sparingly and indeed as the very last resort in
circumstances where justice will not otherwise be done between the two litigants, it cannot
be resorted to where there is an alternative remedy that can be successfully employed to
administer justice between the parties, the guiding principle being that the veil is lifted only
in exceptional circumstances. It is apparent that the dichotomy between a company , which
is a juristic person and a figment of the law and a natural person behind it has been
protected and respected by our courts.
There are several instances where the companies Act provides for exceptions to the concept
of corporate personality, in particular section 32, 58 ,59, 156, 201 and 318. Section 318
being the most important and vivid in showing that the veil of corporate personality is not
inviolate, it provides that the directors and shareholders of a company are to be held
responsible for fraudulent conduct of business, if it appears that any business of a company
was being carried out either, recklessly, with gross negligence or with intent to defraud any
person or for any fraudulent purpose. This provision is the greatest attempt by the
legislature to protect creditors from abuse inherent in the strict application of the separate
corporate existence and limited liability of directors and shareholders. In the case of
Mayhew v Alcock11
, the meaning of section 318 was raised and the court declared that to
render a director personally liable there must be an element of dishonesty in the manner he
carried on business of the company, wherefore on the facts established certain transactions
were undertaken for a fraudulent purpose and the decision to render the appellant
personally liable was correct, hence the legislature’s sledgehammer was instrumental in
cracking the corporate shell.
At common law, fraud has frequently been relied on as a basis by which the courts can
pierce the corporate veil, in the case of Orkin Bros Ltd v Bell12
,the directors of a company
were held personally liable to a seller who sold goods to a company at the instance of the
10 Amlin (pty) Ltd v Van Kooij 2008 (2) SA 558
11 Mayhew v Alcock 1991 (2) ZLR 203
12 Orkin Bros v Bell 1921 TPD 92

5. directors when they knew the company to be in insolvent circumstances and a totally unable
to pay for its purchases, it appeared that the sole purpose of the transaction was to diminish
the personal liability of the directors under a contract of suretyship, this constituted a fraud
on the seller who obtained judgment against the directors personally. This view was in the
Zimbabwean context elaborated in the case of Mkombachoto v CBZ13
, where the court failed
to identify fraud and so could not lift the corporate veil and in the Canadian case of Clarkson
v Zhelka14
, the court decided that if a company is formed for the express purpose of doing a
wrong or unlawful act or if when it is formed, those in control expressly direct a wrongful
thing to be done, the individuals as well as the company are responsible to those to whom
liability is owed. It is clear that our courts are eager to lift the corporate veil where fraud has
transpired in order to protect the company’s creditors and interested parties.
The Courts have however been prepared to lift the corporate veil, under the alter ego
doctrine, where the corporate is organised and operated as a mere tool or conduit of
another corporation or individual as was the inquiry in the American case of O’Donnell v
Weintraub15
, the court looked at the total dealings of the corporation and the individual to
determine whether the corporate veil should be lifted, the specific factors looked at were
the absence of corporate formalities, inadequate capitalisation and the degree to which
corporate and individual property have been separated, amount of financial interest of the
individual in the corporation, degree of control of the individual over the corporation and
whether the individual has used the corporate for personal purposes, the positive finding
justifying the lifting of the corporate veil. The alter ego doctrine was used to disregard the
corporate veil in the case of Ebrahim v Airport Cold Storage ( pty) Ltd16
, where Mr Ebrahim
and his father being the directors and major shareholders abused the corporate form
through failing to keep proper books of records and using corporate finances for their own
personal ends leading to its liquidation, were held personally liable to pay the company’s
creditors amounts due to them. Thereby showing that at common law courts are ready to
13 supra
14 Clarkson v Zhelka [1967] OR 565 (64 DLR (2d) 57)
15 O’ Donnell v Weintraub 67 Cal Raptr 274 ( CA, 1968) at 277-8
16 Abraham v Airport Cold storage (pty) Ltd 2008 (6) SA 585 (SCA)

6. disregard the corporate shell through balancing the principle of separate personality against
considerations arising from particular facts and favouring piercing the veil17
.
Separate corporate existence has been disregarded, where a company is a sham, a cloak or
façade to conceal the owner’s wrongdoings. In the case of Jones v Lipman,18
the defendant
sold his land to his company to prevent a claim of specific performance, the learned Judge
Russel J ,observed that the defendant company is the creature of the first defendant, a
device and a sham, a mask to which he holds before his face in an attempt to avoid
recognition in the eye of equity and proceeded to grant an equitable remedy against the
company in order to do justice. Lifting of the corporate veil and unmasking the shareholder
hiding behind it is succinctly illustrated in the case of Wallersteiner v Moir19
,the defendant
owned several companies and trusts and used them for personal purposes, Lord Denning
MR had this to say “…even so, l am quite clear that they were just the puppets of Dr
Wallersteiner, he controlled their every movement, each danced to his bidding, he pulled the
strings, no one else got within reach of them, transformed into legal language, they were
his agents to do as he commanded, he was the principal behind them… for those dealing he
should be and is responsible”. Thus it is an established principle that courts will pierce the
corporate veil where a company is simply the owner wearing another hat and a façade used
to escape personal liability to the peril of creditors and investors20
.
In conclusion, corporate personality and the limited liability of shareholders remains the
backbone of company law since the Salomon case, the legislature our courts are reluctant to
disregard the dichotomy which exists between companies and natural persons even if the
interests of justice dictates so, the guiding principle being that the veil is limited only in
17 Daimler Co Ltd v Continental Tyre and Rubber Co Ltd [1916] 2 AC 307 the court pierced the
corporate veil and declared a British incorporated company owned by Germans as an enemy through
policy considerations
18 Jones v Lipman [1962] 1 WLR 832
19 Wallersteiner v Moir (No 1) [1947] 1 WLR
20 The Sheriff of the High Court v African Research Institute of Biomedical and Science Technology
HC 90-883-13 – is almost similar to Wallesteneir v Moir, the court held the judgement debtor and a
subsidiary company he owned to be one and the same person making execution of any of the
properties competent and lawful

7. exceptional circumstances after balancing facts requiring lifting of the corporate veil and
policy considerations. It should also be noted that the legislature and our courts have
provided instances at which the veil of corporate personality can be lifted, such as abuse of
corporate formalities, fraud, dishonesty and improper conduct, where the company is a
cloak ,sham or façade and an alter ego of the shareholders and directors controlling it, the
net result is that the law of lifting the corporate veil is still unsettled, incoherent and
unprincipled, courts can simply choose a reason to pierce the corporate veil on an ad hoc
basis albeit with necessary caution as to the consequences on the persons and policy
considerations involved.
BIBLIOGRAPHY
STATUTES
Companies Act [chapter 24:03]
Constitution of Zimbabwe [Amendment No 20 Act 2013]
Criminal Procedure and Evidence Act [9:07]
Cases Referred to
Salomon v Salomon & Co Ltd 1897 AC 22
Macaura v Northern Assurance Company limited [ 1925] AC 619
Mkombachoto V CBZ HH 10-2002
Cape Pacific v Lubner Control investments (pty) Ltd & Ors 1995 (4) SA 790
Amlin (pty) Ltd v Van Kooij 2008 (2) SA 558
Mayhew v Alcock 1991 (2) ZLR 203
Orkin Bros v Bell 1921 TPD 92
Clarkson v Zhelka [1967] OR 565 (64 DLR (2d) 57)
O’ Donnell v Weintraub 67 Cal Raptr 274 ( CA, 1968) at 277-8
Abraham v Airport Cold storage (pty) Ltd 2008 (6) SA 585 (SCA)
Daimler Co Ltd v Continental Tyre and Rubber Co Ltd [1916] 2 AC 307
Jones v Lipman [1962] 1 WLR 832

8. Wallersteiner v Moir (No 1) [1947] 1 WLR
The Sheriff of the High Court v African Research Institute of Biomedical and Science
Technology HC 90-883-13
BOOKS
Gower’s Principles of Modern Company Law (1995, Sweet & Maxwell, London)
HS Cilliers et al Corporate Law (1992, Butterworths, Durban)